<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1998
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
Alabama
Georgia
Louisiana
North
Carolina
South
Carolina
Tennessee
<PAGE>
Highlights
As of May 31, 1998
For Class A shares on net asset value
Credit Quality Performance Highlights
Nuveen Flagship Alabama Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 63%
AA 15%
A 20%
BBB/NR 2%
. Outperformed Lehman Brothers Municipal Bond Index and Lipper peer group
average for the one-year period
. One-year total return of 10.22%
. Taxable-equivalent yield of 7.52%*
Nuveen Flagship Georgia Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 59%
AA 15%
A 22%
BBB/NR 4%
. Outperformed Lehman Brothers Municipal Bond Index and Lipper peer group
average for the one-year period
. Ranked the fifth best-performing tax-free fund in the country for 1997 in
Business Week**
. One-year total return of 11.37%
Nuveen Flagship Louisiana Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 71%
AA 8%
A 12%
BBB/NR 9%
. Outperformed Lehman Brothers Municipal Bond Index and Lipper peer group
average for the one-year period
. One-year total return of 9.88%
. Taxable-equivalent yield of 7.37%*
Nuveen Flagship North Carolina Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 35%
AA 33%
A 16%
BBB/NR 16%
. One-year total return of 8.69%
. Taxable-equivalent yield of 6.59%*
. Steady dividend for 16 consecutive months
Nuveen Flagship South Carolina Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 62%
AA 26%
A 10%
BBB/NR 2%
. Outperformed Lehman Brothers Municipal Bond Index and Lipper peer group
average for the one-year period
. One-year total return of 9.95%
. Taxable-equivalent yield of 7.59%*
Nuveen Flagship Tennessee Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 49%
AA 26%
A 15%
BBB/NR 10%
. Outperformed Lipper peer group average for the one-year period
. One-year total return of 9.01%
. Taxable-equivalent yield of 6.46%*
* For investors in the 31% federal and applicable state income tax bracket.
See your fund's performance overview for more information.
** An article in the December 29, 1997, issue of Business Week ranked the
Nuveen Flagship Georgia Municipal Bond Fund fifth out of 1,391 tax-free
mutual funds based on total returns for the period from January 1,
1997--December 12, 1997. The total return data was provided by Morningstar,
Inc., an independent investment information service, and reflects
appreciation plus reinvestment of dividends and capital gains before taxes.
Contents
1 Dear Shareholder
4 Alabama Commentary
and Overview
6 Georgia Commentary
and Overview
8 Louisiana Commentary
and Overview
10 North Carolina Commentary
and Overview
12 South Carolina Commentary
and Overview
14 Tennessee Commentary
and Overview
16 Report of Independent Public Accountants
17 Portfolio of Investments
41 Statement of Net Assets
43 Statement of Operations
45 Statement of Changes in Net Assets
47 Notes to Financial Statements
54 Financial Highlights
60 Building Better Portfolios
61 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Wealth takes a lifetime to build. Once achieved, it should be preserved.
I'm pleased to share with you this performance report for your Nuveen municipal
bond fund. Over the past 12 months, each of the funds in this report continued
to perform well and meet their objectives of providing you with attractive tax-
free income and strong after-tax total returns.
For many of our shareholders, this annual report represents the first time you
have received a consolidated report covering performance data for other Nuveen
funds in addition to your own. These consolidated reports are part of our
continuing efforts to control fund expenses; we achieve greater economies of
scale for our shareholders through reducing paper, printing and mailing costs.
By consolidating reports by region and incorporating several funds into one
booklet, we have lowered these administrative expenses and made owning shares in
a Nuveen fund more cost-efficient for you.
Fund Update
Earlier this year, the Board of Trustees approved reorganizations of the Alabama
and South Carolina funds, subject to shareholder approval at a special meeting
on August 13. If approved, the Nuveen Flagship Alabama Municipal Bond Fund and
the Nuveen Flagship South Carolina Municipal Bond Fund will be merged into the
Nuveen Flagship All-American Municipal Bond Fund, effective August 21, 1998. The
merger of these funds -- with their similar philosophies and management --
offers shareholders several potential benefits, including lower costs, greater
portfolio flexibility and higher after-tax dividends. Mergers reduce
administrative expenses by consolidating fund reporting, record-keeping and
other operational functions. The combined fund will have a larger asset base,
enabling us to buy and sell larger blocks of bonds, thereby lowering trading
costs and enhancing portfolio liquidity. Although dividends will no longer be
exempt from state income taxes, we anticipate that the proposed merger will
result in higher after-tax dividends for Alabama and South Carolina
shareholders.
The Economy in Review
Fixed-income investments enjoyed bullish performance over the past year, as
declining interest rates and low inflation spurred a bond market rally. The
equity markets also exhibited continued strength despite recent volatility
sparked by Asia's financial problems and their possible effects on U.S.
corporate earnings. Although interest rates have trended slightly upward in
recent months, a year-to-date comparison shows that today's rates are
significantly lower than they
1
<PAGE>
were one year ago. As shown in the accompanying chart, between the end of May
1997 and May 1998, the yield on the Bond Buyer 40, an unmanaged index of long-
term municipal bonds, fell from 5.74% to 5.22%.
Much of the decline in interest rates resulted from expectations that the
financial problems of Asia would restrain the prices of imported goods and
reduce foreign demand for U.S. products and services, thereby keeping inflation
at moderate levels. These inflation expectations were largely fulfilled, as the
Consumer Price Index rose only 1.5% for the 12 months ended May 1998, remaining
at one of its lowest levels in years. The Asian situation also provided
additional strength to the bond market rally, as many investors made a "flight
to quality" by moving assets into high-quality U.S. bonds in the face of the
uncertainty in that region.
In coming months, we will continue to watch closely several key factors that are
likely to affect the future of the economy, including the demand for goods and
services, the availability of qualified employees, the strength of the dollar,
and indications from the Federal Reserve. With many investors still waiting for
the full impact of Asia's difficulties to show up in U.S. economic statistics,
the potential long-term effect of this crisis on American markets continues to
cause concern. We expect that the development of these factors will continue to
influence the tone of the fixed-income markets during the remainder of the year.
Municipal Market Review
As interest rates continued to decline over the past year, bond prices rose.
This price appreciation for the bonds in our portfolios contributed to strong
total returns for the year.
Another major factor in bond performance over the last 12 months was the
continued strength of the U.S. economy, which helped boost the credit quality of
many municipal bonds. With the improvements in the fundamental financial health
of many municipalities and revenue projects financed by bonds, major credit
rating agencies upgraded the credit quality of thousands of issuers over the
past year, while downgrading relatively few. These boosts in credit quality also
contributed to the funds' performance as upgraded bonds increased in value.
The combination of low interest rates and a strong economy set new issuance on a
record pace and stimulated a dramatic increase in the refinancing of existing
bonds as issuers sought to lower their interest costs. The first quarter of 1998
saw $68 billion of new municipal issuance, up 70% from the same period in 1997.
The flood of new issues continued with May's long-awaited sale of the first
segment of Long Island (New York) Power Authority's $7 billion offering, the
largest issuance in municipal
"Another major factor in bond performance over the last 12 months was the
continued strength of the U.S. economy, which helped boost the credit quality
of many municipal bonds."
<PAGE>
"Today, more than ever, you can count on Nuveen for a wide range of investments
that can help you build a well-balanced portfolio designed to achieve your
financial goals."
bond history. Although the nationwide supply of municipal bonds remained heavy,
the supply of bonds in each state varied according to local economic conditions.
This level of issuance highlights the value of Nuveen's expertise in the
municipal market, as our portfolio management teams worked diligently to sift
through the available issues to select those undervalued securities that would
help the funds achieve their investment objectives.
Diversification: The Key
to a Better Portfolio
In view of current market conditions, we believe that investors will find
diversification to be an increasingly important investment strategy in the
months ahead. An appropriately diversified portfolio -- one that balances
different types of investments, levels of risk and tax management -- can help
cushion your portfolio against volatility and enhance your return potential.
Many investors select Nuveen's municipal bond funds because their emphasis on
dependable tax-free income and attractive after-tax returns makes them ideal for
building and sustaining long-term financial security. These funds also work well
with other Nuveen investments to create the foundation of a diversified, well-
balanced portfolio. In fact, recent studies by Nuveen Research have found that
portfolios combining municipal bonds and stocks generated higher after-tax
returns with lower levels of risk than similar portfolios combining stocks and
Treasury or corporate bonds.
We encourage you to talk to your financial adviser about Nuveen's range of
equity and balanced funds, including the Nuveen European Value Fund. This new
equity mutual fund offers a portfolio of quality European company stocks for
investors seeking long-term growth potential and international diversification.
The fund is just one of an ever-expanding range of Nuveen products and services
designed to help investors achieve diversification while building a tax-
efficient, risk-sensitive investment portfolio. If you'd like to learn more
about the Nuveen European Value Fund or any of our other investments, contact
your financial adviser or call Nuveen Investor Services at (800) 257-8787 for a
prospectus. Please read the information carefully before you invest.
When seeking quality investment solutions that withstand the test of time, we
hope that you continue to think of Nuveen. Today, more than ever, you can count
on Nuveen for a wide range of investments that can help you build a well-
balanced portfolio designed to achieve your financial goals. We thank you for
your continued confidence in us and our family of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1998
3
<PAGE>
Nuveen Flagship Alabama Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Mike Davern discusses fund performance, the municipal market,
and key investment strategies for the Alabama fund.
Comments cover the one-year period ended May 31, 1998 and all performance
statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
Alabama's economy continues to diversify as it moves toward the service, trade
and finance sectors, and away from traditional manufacturing industries. The
state's once healthy apparel industry is facing increased competition from
foreign and domestic companies, but has been somewhat offset by growth in wood,
paper products and durable manufacturing industries. Although per capita income
falls below the national average, it is slowly improving.
Financial operations remain satisfactory. Alabama has a strong unreserved
General Fund balance and an extremely low debt burden. In the current
legislative session, large debt proposals are under discussion: $1 billion for
educational spending, and $700 million in gas tax-supported revenue bonds for
highways. Overall, municipal bond supply was strong during the past year,
particularly in the housing and health care sectors.
Fund Performance
The fund performed exceptionally well over the past year, generating a total
return on net asset value of 10.22%, which is equivalent to a taxable return of
12.89% for investors in the 33.4% combined federal and state income tax bracket.
The total return significantly outperformed the annual return of 9.38% posted by
the unmanaged Lehman Brothers Municipal Bond Index, and surpassed the average
return of 8.32% for its Lipper peer group of Alabama municipal bond funds by
almost 200 basis points. In addition, the fund was ranked second of the 11
Alabama funds in its Lipper peer group for the year. The fund also provided a
very competitive yield of 5.01%, which is equivalent to a taxable yield of 7.52%
for investors in the 33.4% combined federal and state income tax bracket. This
performance is even more impressive given the fund's high credit quality (63% in
AAA bonds).
Key Strategies
There were several elements contributing to the fund's strong performance during
the past year. First was its longer duration, which is a measure of the fund's
price volatility in relation to changes in interest rates. The fund's duration
of 8.05 years was longer than the Lehman Index's average duration of 7.11 years.
The longer duration allowed the fund to better participate in this year's market
rally, although it would have been more adversely affected had there been a
market downturn. In addition to its longer duration, we were able to maintain
good call protection, avoiding issues that would be called away in the event of
a near-term change in interest rates and would therefore impact the fund's
income levels. With that in mind, we found value in some call-protected housing
bonds, as well as some health care issues.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 20%
of the portfolio invested in water and sewer bond issues, 18% in health care
bonds, 13% in education and civic organization issues and 18% in tax obligation
debt.
Outlook for the Future
Going forward, we expect conditions in which we can maintain the duration of the
portfolio, as well as its favorable call protection. In terms of specific
sectors, we will seek out attractive health care and water and sewer issues.
Higher-quality issues will continue to dominate the portfolio, because narrow
yield spreads between lower- and higher-rated securities provide little reward
for assuming the increased credit risk associated with lower-quality bonds.
Overall, we will continue to maintain the fund's current healthy
diversification, which should be aided by continuing strong supply in the state.
4
<PAGE>
Nuveen Flagship Alabama Municipal Bond Fund
Performance Overview
As of May 31, 1998
Monthly Tax-Free Dividends (Class A Shares)
[BAR CHART APPEARS HERE]
0.044 6/97
0.044 7/97
0.044 8/97
0.044 9/97
0.044 10/97
0.044 11/97
0.044 12/97
0.0435 1/98
0.0435 2/98
0.0435 3/98
0.0435 4/98
0.0435 5/98
Top 5 Sectors
Water and Sewer 20%
Health Care 18%
Education and Civic Organizations 13%
Tax Obligation (General) 9%
Tax Obligation (Limited) 9%
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception Date 4/94 2/97 2/97 2/97
Net Asset Value $10.61 $10.62 $10.62 $10.68
Fund Net Assets ($000) $8,050
Average Weighted Maturity (Years) 22.45
Average Weighted Duration (Years) 8.05
Annualized Total Return/1/
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------------
1-Year 10.22% 5.63% 9.31% 9.54% 11.06%
3-Year 7.68% 6.14% 7.04% 7.26% 8.01%
Since Inception 7.99% 6.88% 7.36% 7.57% 8.23%
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------------
Distribution Rate 4.92% 4.71% 4.18% 4.41% 5.11%
SEC 30-Day Yield 5.01% 4.80% 4.28% 4.48% 5.23%
Taxable Equivalent Yield/2/ 7.52% 7.21% 6.43% 6.73% 7.85%
</TABLE>
Index Comparison/3/
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
Nuveen Flagship Alabama Nuveen Flagship Alabama Lehman Brothers
Municipal Bond Fund (NAV) Municipal Bond Fund (Offer) Municipal Bond Index
<S> <C> <C> <C>
4/94 10,000 9,580 10,000
5/95 11,019 10,556 11,006
5/96 11,429 10,949 11,509
5/97 12,482 11,958 12,463
5/98 13,758 13,180 13,633
</TABLE>
Lehman Brothers Municipal Bond Index $13,633
Nuveen Flagship Alabama Municipal Bond Fund (NAV) $13,758
Nuveen Flagship Alabama Municipal Bond Fund (Offer) $13,180
Past performance is not predictive of future results.
1 Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
shares have a 4.2% maximum sales charge. Class B shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and declines
periodically to 0% over the following five years, which is not reflected in
the return figures. Class C shares have a 1% CDSC for redemptions within one
year which is not reflected in the one-year total return.
2 Based on SEC yield and a combined federal and state income tax rate of 33.4%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in the
Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal
Bond Index. The Lehman Index is comprised of a broad range of investment-grade
municipal bonds, and does not reflect any initial or ongoing expenses. The
Nuveen fund return depicted in the chart reflects the initial maximum sales
charge applicable to A shares (4.20%) and all ongoing fund expenses.
5
<PAGE>
Nuveen Flagship Georgia Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Mike Davern discusses fund performance, the municipal market,
and key investment strategies for the Georgia fund.
Comments cover the one-year period ended May 31, 1998 and all
performance statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
In August 1997, Georgia joined the ranks of other states with the top rating for
its municipal bonds when Standard & Poor's upgraded the state's general
obligation rating to AAA, citing a strengthened financial position and favorable
economic trends. Since then, Georgia has continued to experience population, tax
base and overall economic growth, especially in the Atlanta metropolitan area,
while maintaining a low debt burden. The presence of several major corporate
headquarters has helped diversify the economy, and the rapidly growing service
sector has offset manufacturing sector losses. In terms of population, Georgia
is expected to remain among the fastest-growing states over the next five years.
With the Atlanta area experiencing rapid growth in school enrollment, many
school districts are making an effort to manage future growth by participating
in a one percent sales tax program designed in part to ease the property tax
burden. Use of these programs should enable school districts to fund necessary
capital projects without overburdening the property tax base. Overall, municipal
bond supply was strong during the past year, particularly in the housing and
health care sectors.
Fund Performance
The Georgia Municipal Bond Fund performed exceptionally well over the past year,
generating a total return of 11.37%, which is equivalent to a taxable return of
14.32% for investors in the 35.1% combined federal and state income tax bracket.
The total return significantly out-performed the annual return of 9.38% posted
by the unmanaged Lehman Brothers Municipal Bond Index and surpassed its Lipper
peer group average of 9.37% by 200 basis points. In addition, the Georgia
Municipal Bond Fund was ranked fourth among the 34 Georgia municipal bond funds
followed by Lipper. The fund also provided a competitive yield of 4.74%, which
is equivalent to a taxable yield of 7.30% for investors in the 35.1% combined
federal and state income tax bracket. This excellent performance record was
recognized by Business Week magazine, which ranked the fund the fifth best-
performing tax-free fund in the country for 1997.*
Key Strategies
There were several elements contributing to the fund's outstanding performance
during the past year. First was the Georgia fund's long portfolio duration,
which is a measure of the fund's price volatility in relation to changes in
interest rates. The fund's duration of 8.39 years was longer than the Lehman
Index's average duration of 7.11 years. The longer duration allowed the fund to
better participate in this year's market rally, although it would have been more
adversely affected had there been a market downturn. In addition to its longer
duration, we focused on maintaining good call protection, avoiding issues that
would be called away in the event of a near-term change in interest rates and
could affect the fund's income levels. With that in mind, we found value in some
escrowed government housing bonds, as well as some health care issues.
Pre-refunded bonds also played an important role in this outstanding
performance. In a pre-refunding, bonds are essentially paid off by their issuer
and backed by U.S. Treasury securities until they can be called from the
portfolio. As a result these bonds generally increase in value, contributing to
the fund's strong total returns.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 20%
of the portfolio invested in U.S. guaranteed bonds (reflecting the numerous pre-
refundings), 18% in limited tax obligation issues, 13% in multifamily housing
bonds and 10% in single-family housing debt.
Outlook for the Future
On July 1, 1998, Nuveen made several changes in the management of its mutual
funds to make more efficient use of staff resources and portfolio manager
expertise. As a result, Tom O'Shaughnessy assumed management responsibilities
for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment
professional who has managed a range of other municipal bond funds. Going
forward, Tom and his team expect conditions in which they can maintain the
duration of the portfolio, as well as its favorable call protection. Higher-
quality issues will continue to dominate the portfolio, because narrow yield
spreads between lower- and higher-rated securities provide little reward for
assuming the increased credit risk associated with lower-quality bonds. Overall,
they will continue to maintain the fund's current healthy diversification, which
should be aided by continuing strong supply.
* Please see inside front cover for more information.
6
<PAGE>
Nuveen Flagship Georgia Municipal Bond Fund
Performance Overview
As of May 31, 1998
Monthly Tax-Free Dividends (Class A Shares)
[BAR CHART APPEARS HERE]
0.047 6/97
0.047 7/97
0.047 8/97
0.047 9/97
0.047 10/97
0.047 11/97
0.047 12/97
0.047 1/98
0.047 2/98
0.047 3/98
0.047 4/98
0.047 5/98
Top 5 Sectors
U.S. Guaranteed 20%
.............................
Tax Obligation (Limited) 18%
.............................
Housing (Multifamily) 13%
.............................
Housing (Single-Family) 10%
.............................
Health Care 9%
- -----------------------------
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 3/86 2/97 1/94 2/97
...........................................................................................
Net Asset Value $11.19 $11.20 $11.17 $ 11.15
...........................................................................................
Fund Net Assets ($000) $143,078
...........................................................................................
Average Weighted Maturity (Years) 21.34
...........................................................................................
Average Weighted Duration (Years) 8.39
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1-Year 11.37% 6.73% 10.66% 10.79% 11.23%
...........................................................................................
5-Year 6.72% 5.80% 6.11% 6.11% 6.71%
...........................................................................................
10-Year 8.12% 7.65% 7.65% 7.51% 8.11%
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution Rate 4.93% 4.73% 4.18% 4.40% 5.17%
...........................................................................................
SEC 30-Day Yield 4.74% 4.54% 3.99% 4.19% 4.94%
...........................................................................................
Taxable Equivalent Yield/2/ 7.30% 7.00% 6.15% 6.46% 7.61%
- -------------------------------------------------------------------------------------------
</TABLE>
Index Comparison/3/
[MOUNTAIN CHART APPEARS HERE]
A = Nuveen Flagship Georgia Municipal Bond Fund (NAV)
B = Nuveen Flagship Georgia Municipal Bond Fund (Offer)
C = Lehman Brothers Municipal Bond Index
A B C
5/88 10000 9580 10000
5/89 11376 10898 11149
5/90 11894 11394 11965
5/91 13070 12521 13171
5/92 14221 13624 14466
5/93 15762 15100 16195
5/94 16052 15378 16595
5/95 17386 16656 18107
5/96 17915 17162 18934
5/97 19595 18772 20505
5/98 21827 20910 22430
- -- Lehman Brothers Municipal Bond Index $22,430
- -- Nuveen Flagship Georgia Municipal Bond Fund (NAV) $21,827
- -- Nuveen Flagship Georgia Municipal Bond Fund (Offer) $20,910
Past performance is not predictive of future results.
/1/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
/2/ Based on SEC yield and a combined federal and state income tax rate of
35.1%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/3/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
7
<PAGE>
Nuveen Flagship Louisiana Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Jan Terbrueggen discusses fund performance, the municipal
market, and key investment strategies for the Louisiana fund.
Comments cover the one-year period ended May 31, 1998 and all performance
statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
Louisiana's economic and financial condition improved during 1997. The state
continued to reduce its reliance on federal grants, in favor of other more
dependable revenue sources. The state remains dependent on the tourism industry,
which fuels sales tax and gaming revenues, both of which are important to the
state's annual operating budget. In addition, Louisiana has lessened its
dependence on the oil and gas industries -- the primary sources of the state's
historically unsteady economy.
Although the state's overall debt burden declined during 1997, several bond
issues are anticipated in 1998, including school building and prison bonds. In
fact, new issue volume for the state is up 56% during the first quarter of 1998.
Given the state's improved condition, Louisiana bonds should be well-received
among both state and national municipal market participants.
Fund Performance
The fund posted a strong total return of 9.88% for the year, which is equivalent
to a taxable return of 12.66% for investors in the 33.9% combined federal and
state income tax bracket. The total return outpaced the return of 9.38% posted
by the unmanaged Lehman Brothers Municipal Bond Index and surpassed its peer
group average of 8.56% by well over 100 basis points. The Louisiana Municipal
Bond Fund also ranked second among the 13 Louisiana municipal bond funds
followed by Lipper Analytical Service, a nationally recognized performance
measurement service. In addition, the fund posted a competitive yield of 4.87%,
which is equivalent to a taxable yield of 7.37% for investors in the 33.9%
combined federal and state income tax bracket.
Key Strategies
There were several elements contributing to the fund's strong performance during
the past year. First was the Louisiana fund's duration, which is a measure of
the fund's price volatility in relation to changes in interest rates. The fund's
duration of 7.72 years was somewhat longer than the Lehman Index's average
duration of 7.11 years. The longer duration allowed the fund to better
participate in this year's market rally, although it would have been more
adversely affected had there been a market downturn. In addition to maintaining
the longer duration, we took advantage of Nuveen's diligent research team to
find financially strong lower-rated bonds that offered competitive yields. We
also found good yields in a few key sectors, including hospital bonds and bonds
subject to the alternative minimum tax (which does not affect most
shareholders). The fund also benefited from the ongoing appreciation of a number
of housing issues, as Fannie Mae took a large position in the state's housing
bonds, keeping prices high.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 18%
of the portfolio invested in health care bonds, 14% in general tax obligation
securities, 12% in limited tax obligation issues and 12% in single-family
housing debt.
Outlook for the Future
On July 1, 1998, Nuveen made several changes in the management of its mutual
funds to make more efficient use of staff resources and portfolio manager
expertise. As a result, Mike Davern assumed management responsibilities for this
fund. Mike is a seven-year veteran of Nuveen with 16 years of experience as an
investment professional. He has managed a range of other state municipal bond
funds. Mike and his team will allow the high income levels and potential price
appreciation we have enjoyed from a number of outstanding housing issues to
continue to work for shareholders. At the same time, they will avoid the state's
general obligation debt, which is not attractive at this time. In addition, they
expect to maintain the fund's current moderately longer duration.
8
<PAGE>
Nuveen Flagship Louisiana Municipal Bond Fund
Performance Overview
As of May 31, 1998
- ------------------------------------------------------------------
Monthly Tax-Free Dividends (Class A Shares)/1/
- ------------------------------------------------------------------
[BAR CHART APPEARS HERE]
0.049 6/97
0.049 7/97
0.049 8/97
0.049 9/97
0.049 10/97
0.049 11/97
0.049 12/97
0.049 1/98
0.049 2/98
0.049 3/98
0.048 4/98
0.048 5/98
- ------------------------------------------------------------------
Top 5 Sectors
- ------------------------------------------------------------------
Health Care 18%
Tax Obligation (General) 14%
Tax Obligation (Limited) 12%
Housing (Single-Family) 12%
U.S. Guaranteed 11%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Portfolio Statistics
- ------------------------------------------------------------------
Share Class A B C R
- ------------------------------------------------------------------
Inception Date 9/89 2/97 2/94 2/97
Net Asset Value $11.55 $11.55 $11.54 $ 11.55
Fund Net Assets ($000) $111,852
Average Weighted Maturity (Years) 21.64
Average Weighted Duration (Years) 7.72
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Annualized Total Return/2/
- -------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------
1-Year 9.88% 5.24% 9.18% 9.32% 10.21%
5-Year 6.95% 6.04% 6.32% 6.35% 7.01%
Since Inception 8.51% 7.98% 7.95% 7.91% 8.55%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Tax-Free Yields
- -------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------
Distribution Rate 4.99% 4.78% 4.26% 4.47% 5.19%
SEC 30-Day Yield 4.87% 4.66% 4.12% 4.32% 5.07%
Taxable Equivalent Yield/3/ 7.37% 7.05% 6.23% 6.54% 7.67%
- -------------------------------------------------------------------
- ------------------------------------------------------------------
Index Comparison/4/
- ------------------------------------------------------------------
[MOUNTAIN CHART APPEARS HERE]
Nuveen Flagship Nuveen Flagship Lehman Brothers
Louisiana Municipal Louisiana Municipal Municipal Bond
Bond Fund (NAV) Bond Fund (Offer) Index
5/90 10501.5 10060.4 10580.5
5/91 11704.8 11213.2 11646.9
5/92 12915.2 12372.7 12791.9
5/93 14604.5 13991.1 14321.7
5/94 14861.1 14237 14675.3
5/95 16229 15547 16012
5/96 17002 16288 16744
5/97 18595 17814 18132
5/98 20432 19574 19834
- ------------------------------------------------------------------
Lehman Brothers Municipal Bond Index $19,834
Nuveen Flagship Louisiana Municipal Bond Fund (NAV) $20,432
Nuveen Flagship Louisiana Municipal Bond Fund (Offer) $19,574
Past performance is not predictive of future results.
/1/ The fund also paid shareholders taxable distributions in December of
$0.0387 per share.
/2/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
/3/ Based on SEC yield and a combined federal and state income tax rate of
33.9%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/4/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
9
<PAGE>
Nuveen Flagship North Carolina Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Walt Parker discusses fund performance, the municipal market,
and key investment strategies for the North Carolina fund.
Comments cover the one-year period ended May 31, 1998 and all
performance statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
North Carolina's economy continues to expand, while decreasing its historic
reliance on furniture manufacturing and tobacco and increasing the number of
technology companies. The state's financial operations have been well-managed,
which is reflected in strong budget reserve levels, low debt burden, and the
ability to enact a one percent reduction in the food tax. In early 1997, voters
approved the largest bond issue in state history, with $1.8 billion of the total
$2.75 billion earmarked for school construction.
Despite that record bond issue, supply in the state remained tight and was
dominated mainly by small issues. That, combined with a narrow spread between
the yields on higher- and lower-quality bonds, increased the challenge of
identifying value in the market. In part due to the state's enormous population
growth, many of the year's most attractive buying opportunities came from bond
issues supporting essential services such as school, water and sewer projects.
Fund Performance
For the year ended May 31, 1998, the total return on net asset value for the
North Carolina Municipal Bond Fund was 8.69%, which is equivalent to a taxable
return of 11.72% for investors in the 36.3% combined federal and state income
tax bracket. The total return compares to the annual return of 9.38% posted by
the unmanaged Lehman Brothers Municipal Bond Index, as well as the average
return of 9.04% for the peer group of North Carolina municipal bond funds
tracked by Lipper Analytical Service. The fund also provided a competitive yield
of 4.20%, which is equivalent to a 6.59% taxable yield for investors in the
36.3% combined federal and state income tax bracket.
Although the fund slightly underperformed these two benchmark measures on a
total return basis, it maintained a steady monthly dividend of $0.0445 per share
throughout the period. The fund holds a number of high-yielding bonds purchased
during a higher interest rate environment. Although these bonds help support the
fund's competitive dividend, they were less able to participate in this year's
market rally since they have already experienced significant price appreciation.
Key Strategies
The North Carolina Municipal Bond Fund is among Nuveen's larger and older funds.
Many of the bonds in the portfolio were purchased during a much higher interest
rate environment, and have substantially higher coupon rates than are available
in today's market. Therefore, we focus on stability as much as possible with
this fund and tend to sell these higher-yielding securities only when an
unusually favorable opportunity arises.
In an attempt to make the most of the year's limited supply, we focused on
reducing the fund's holdings in the health care sector, while increasing our
position in the bonds of the state's essential services. The health care sector
provided numerous opportunities to find value over the past few years, and the
fund's weighting in that sector rose as high as 24% as we took advantage of
those opportunities. However, the characteristics of the sector have evolved,
and as mergers and acquisitions have become commonplace, particularly among
regional facilities, these bonds have become more volatile. As a result, we have
decreased our exposure to health care and moved away from regional hospitals--
which are more likely to be acquired by larger operations--and into the bonds
of more established and stable teaching hospitals.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
Outlook for the Future
On July 1, 1998, Nuveen made several changes in the management of its mutual
funds to make more efficient use of staff resources and portfolio manager
expertise. As a result, Tom O'Shaughnessy assumed management responsibilities
for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment
professional who has managed a range of other municipal bond funds. In the near
future, Tom and his team expect to see the state's growing population translate
into increased general obligation debt as North Carolina's infrastructure needs
continue to increase. Until that happens, and until the yield spread between
lower- and higher-quality bonds widens, they will continue to seek out value
from small bond issues with favorable yields. Particular areas they will be
monitoring include essential services, education and housing bonds. They will
also continue to focus on maximizing the fund's after-tax income.
10
<PAGE>
Nuveen Flagship North Carolina Municipal Bond Fund
Performance Overview
As of May 31, 1998
Monthly Tax-Free Dividends (Class A Shares)/1/
[Bar Chart Appears here]
0.0445 6/97
0.0445 7/97
0.0445 8/97
0.0445 9/97
0.0445 10/97
0.0445 11/97
0.0445 12/97
0.0445 1/98
0.0445 2/98
0.0445 3/98
0.0445 4/98
0.0445 5/98
Top 5 Sectors
Health Care 18%
.............................................................................
Tax Obligation (Limited) 18%
.............................................................................
Utilities 16%
.............................................................................
U.S. Guaranteed 12%
.............................................................................
Housing (Single-Family) 11%
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 3/86 2/97 10/93 2/97
.................................................................................
Net Asset Value $10.62 $10.62 $10.60 $ 10.62
.................................................................................
Fund Net Assets ($000) $199,088
.................................................................................
Average Weighted Maturity (Years) 20.44
.................................................................................
Average Weighted Duration (Years) 7.35
- ---------------------------------------------------------------------------------
Annualized Total Return2
Share Class A(NAV) A(Offer) B C R
- ---------------------------------------------------------------------------------
1-Year 8.69% 4.13% 7.89% 8.09% 8.88%
.................................................................................
5-Year 5.74% 4.84% 5.12% 5.12% 5.79%
.................................................................................
10-Year 7.84% 7.38% 7.38% 7.23% 7.87%
- ---------------------------------------------------------------------------------
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- ---------------------------------------------------------------------------------
Distribution Rate 5.03% 4.82% 4.29% 4.47% 5.20%
.................................................................................
SEC 30-Day Yield 4.20% 4.02% 3.46% 3.65% 4.40%
.................................................................................
Taxable Equivalent Yield/3/ 6.59% 6.31% 5.43% 5.73% 6.91%
.................................................................................
</TABLE>
Index Comparison/4/
[Mountain Chart Appears Here]
Nuveen Flagship Nuveen Flagship
North Carolina North Carolina Lehman Brothers
Municipal Bond Municipal Bond Municipal Bond
Fund (NAV) Fund (Offer) Index
5/88 10,000 9,580 10,000
5/89 11,476 10,994 11,149
5/90 12,068 11,561 11,965
5/91 13,189 12,635 13,171
5/92 14,414 13,808 14,466
5/93 16,092 15,417 16,195
5/94 16,298 15,614 16,595
5/95 17,512 16,777 18,107
5/96 18,154 17,391 18,934
5/97 19,567 18,745 20,505
5/98 21,268 20,375 22,430
- -- Lehman Brothers Municipal Bond Index $22,430
- -- Nuveen Flagship North Carolina Municipal Bond Fund (NAV) $21,268
- -- Nuveen Flagship North Carolina Municipal Bond Fund (Offer) $20,375
Past performance is not predictive of future results.
1 The fund also paid shareholders taxable distributions in December of $0.0023
per share.
2 Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
shares have a 4.2% maximum sales charge. Class B shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
3 Based on SEC yield and a combined federal and state income tax rate of 36.3%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
4 The Index Comparison shows the change in value of a $10,000 investment in the
Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal
Bond Index. The Lehman Index is comprised of a broad range of investment-
grade municipal bonds, and does not reflect any initial or ongoing expenses.
The Nuveen fund return depicted in the chart reflects the initial maximum
sales charge applicable to A shares (4.20%) and all ongoing fund expenses.
11
<PAGE>
Nuveen Flagship South Carolina Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Walt Parker discusses fund performance, the municipal market,
and key investment strategies for the South Carolina fund.
Comments cover the one-year period ended May 31, 1998 and all
performance statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
Standard & Poor's upgraded the rating on South Carolina's general obligation
bonds in 1996 in response to the state's careful and conservative approach to
debt and financial operations. Since then, South Carolina's economy has
continued to diversify into the services, trade, and tourism industries,
offsetting a continuing decline in the once-robust textile industry. A tax
incentive program has convinced more than 300 companies to relocate to rural
areas of the state.
Financial operations remain healthy with low debt levels, but those levels may
rise due to the state's significant infrastructure needs, estimated at $50
billion in the next 20 years.
Despite a positive long-term outlook for bond issues, expanding state coffers
tightened bond supplies last year, and competition for existing issues was high.
The resulting narrow spread between the yields on higher- and lower-quality
bonds increased the challenge of identifying value in the marketplace.
In part because of the state's enormous population growth, many of the year's
most attractive buying opportunities came from bond issues supporting essential
services--including schools, roads, and water and sewer projects.
Fund Performance
The fund posted strong performance for the year, generating a total return of
9.95%, which is equivalent to a taxable return of 12.89% for investors in the
35.8% combined federal and state income tax bracket. The total return outpaced
the return of 9.38% posted by the benchmark Lehman Brothers Municipal Bond Index
and surpassed the Lipper peer group average return of 8.91% by more than 100
basis points. The South Carolina Municipal Bond Fund also ranked second of the
19 South Carolina municipal bond funds followed by Lipper. The fund also
provided a competitive tax-free yield of 4.87%, which is equivalent to a taxable
return of 7.59% for investors in the 35.8% combined federal and state income tax
bracket.
Key Strategies
One of our key strategies during the year was to work toward a longer portfolio
duration for the fund, which is a measure of price volatility in reaction to
changes in interest rates. Longer duration funds are better able to participate
in a market rally, but will suffer more during a market downturn. In addition,
we used cash inflows to help diversify the portfolio among different sectors of
the economy. In particular, we focused during the year on reducing the fund's
holdings in the health care sector, while increasing our position in the bonds
of the state's essential services, including water and sewer projects. We
believe these bonds offered good values despite the lack of supply in the
market.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 18%
of the portfolio invested in limited tax obligation bond issues, 18% in general
tax obligation issues, 15% in water and sewer bonds and 14% in health care debt.
Outlook for the Future
In the near future, we expect to see the state's growing population translate
into increased general obligation debt. Until that happens, and until the yield
spread between lower- and higher-quality bonds widens, we will continue to seek
value and competitive yields from small, lower-rated but still investment-
quality bond issues. Particular areas we will be monitoring include the more
financially secure essential service issues. We will continue our focus on long-
term value and income for shareholders, and expect that the fund's smaller size
will make it easier to position the fund to take advantage of changes in the
market.
12
<PAGE>
Nuveen Flagship South Carolina Municipal Bond Fund
Performance Overview
As of May 31, 1998
Monthly Tax-Free Dividends (Class A Shares)
[Bar Chart Appears here]
0.0415 6/97
0.0415 7/97
0.0415 8/97
0.0415 9/97
0.0415 10/97
0.0415 11/97
0.0415 12/97
0.04 1/98
0.04 2/98
0.04 3/98
0.04 4/98
0.04 5/98
Top 5 Sectors
Tax Obligation (Limited) 18%
...............................................................................
Tax Obligation (General) 18%
...............................................................................
Water and Sewer 15%
...............................................................................
Health Care 14%
...............................................................................
Education and Civic Organizations 10%
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 7/93 2/97 2/97 2/97
................................................................................................
Net Asset Value $9.97 $9.96 $ 9.96 $ 9.97
................................................................................................
Fund Net Assets ($000) $13,300
................................................................................................
Average Weighted Maturity (Years) 19.74
................................................................................................
Average Weighted Duration (Years) 8.24
- ------------------------------------------------------------------------------------------------
Annualized Total Return/1/
Share Class A(NAV) A(Offer) B C R
- ------------------------------------------------------------------------------------------------
1-Year 9.95% 5.31% 9.17% 9.37% 10.10%
................................................................................................
3-Year 7.22% 5.71% 6.51% 6.72% 7.32%
................................................................................................
Since Inception 6.15% 5.22% 5.49% 5.70% 6.21%
- ------------------------------------------------------------------------------------------------
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- ------------------------------------------------------------------------------------------------
Distribution Rate 4.81% 4.61% 4.10% 4.28% 5.06%
................................................................................................
SEC 30-Day Yield 4.87% 4.66% 4.14% 4.33% 5.09%
................................................................................................
Taxable Equivalent Yield/2/ 7.59% 7.26% 6.45% 6.74% 7.93%
- ------------------------------------------------------------------------------------------------
</TABLE>
Index Comparison/3/
[Mountain Chart Appears Here]
Nuveen Flagship Nuveen Flagship Lehman Brothers
South Carolina South Carolina Municipal
Bond Fund (NAV) Bond Fund (Offer) Bond Index
7/93 10,000 9,580 10,000
5/94 10,014 9,594 10,066
5/95 10,870 10,413 10,982
5/96 11,253 10,780 11,484
5/97 12,183 11,671 12,437
5/98 13,394 12,832 13,604
- -- Lehman Brothers Municipal Bond Index $13,604
- -- Nuveen Flagship South Carolina Bond Fund (NAV) $13,394
- -- Nuveen Flagship South Carolina Bond Fund (Offer) $12,832
Past performance is not predictive of future results.
/1/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
/2/ Based on SEC yield and a combined federal and state income tax rate of
35.8%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/3/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
13
<PAGE>
Nuveen Flagship Tennessee Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Walt Parker discusses fund performance, the municipal market,
and key investment strategies for the Tennessee fund.
Comments cover the one-year period ended May 31, 1998 and all
performance statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
In May 1998, Tennessee's municipal bond debt earned a credit upgrade to AAA from
Standard & Poor's, joining the ranks of only six other states receiving the top
credit quality rating. The credit upgrade reflects the state's rapid growth in
population, employment and capital investments since 1990. As a result of that
growth, state officials have worked hard to maintain revenues as service
expenditures continue to increase. In addition, proactive cost-cutting measures,
lower state health care costs, a low debt burden and diversifying economy
contributed to the state's improved financial health. Overall, Tennessee's
economy has moved away from dependence on apparel and textile manufacturing and
now has almost equal distribution in manufacturing, service, trade, and
government sectors.
Municipal bond supplies were strong last year, although narrow spreads between
the yields on higher-and lower-quality bonds increased the challenge
of identifying value in the markets. Attractive buying opportunities came from
bond issues supporting essential services, as well as some pollution control
bonds.
Fund Performance
For the year ended May 31, 1998, the fund posted a total return of 9.01%, which
is equivalent to a taxable return of 11.91% for investors in the 35.1% combined
federal and state income tax bracket. The fund outpaced its Lipper peer group
average return of 8.88% for Tennessee municipal bond funds, and performed just
slightly below the return of 9.38% for the Lehman Brothers Municipal Bond Index.
In addition, the fund provided a tax-free yield of 4.19%, which is equivalent to
a taxable return of 6.46% for investors in the 35.1% combined federal and state
income tax bracket.
Key Strategies
One of our key strategies during the year was to work toward a longer duration
for the fund, which is a measure of price volatility in reaction to changes in
interest rates. Longer duration funds are better able to participate in a market
rally, but will suffer more during a market downturn. Another strategy was to
focus on reducing the fund's holdings in the housing sector, while increasing
our position in bonds of the state's essential services. These bonds provided
better yields and appreciation potential, which will help us support the
dividend. In addition, we began to see improved protection against bond calls in
several new issues, which reduces the likelihood that high-paying bonds will be
called away if interest rates remain low. In the past, the high demand for
Tennessee bonds meant that new bonds could be issued with less favorable call
provisions. However, the increased supply of state bonds, particularly the more
heavily issued essential services, forced issuers to provide more favorable
structures such as increased call protection.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 18%
of the portfolio invested in U.S. guaranteed securities, 15% in limited tax
obligation issues, 13% in health care debt and 11% in utility bonds.
Outlook for the Future
On July 1, 1998, Nuveen made several changes in the management of its mutual
funds to make more efficient use of staff resources and portfolio manager
expertise. As a result, Tom O'Shaughnessy assumed management responsibilities
for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment
professional who has managed a range of other municipal bond funds. Tom and his
team believe the fund is well structured for a continued strong market. Until
the yield spreads widen between lower- and higher-quality bonds, they will
continue to seek out value from smaller bond issues. Particular areas they will
be monitoring include essential service issues and bonds with favorable call
structures. If the state's economy does slow as expected, they expect to see
more supply and even more good buying opportunities in the year ahead.
14
<PAGE>
Nuveen Flagship Tennessee Municipal Bond Fund
Performance Overview
As of May 31, 1998
- ------------------------------------------------------------------
Monthly Tax-Free Dividends (Class A Shares]
- ------------------------------------------------------------------
[BAR CHART APPEARS HERE]
0.049 6/97
0.049 7/97
0.049 8/97
0.049 9/97
0.049 10/97
0.049 11/97
0.049 12/97
0.047 1/98
0.047 2/98
0.047 3/98
0.047 4/98
0.047 5/98
- ------------------------------------------------------------------
Top 5 Sectors
- ------------------------------------------------------------------
U.S. Guaranteed 18%
Tax Obligation (Limited) 15%
Health Care 13%
Utilities 11%
Tax Obligation (General) 7%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Portfolio Statistics
- -------------------------------------------------------------------
Share Class A B C R
- -------------------------------------------------------------------
Inception Date 11/87 2/97 10/93 2/97
Net Asset Value $11.46 $11.46 $11.45 $ 11.44
Fund Net Assets ($000) $305,213
Average Weighted Maturity (Years) 19.40
Average Weighted Duration (Years) 7.61
- -------------------------------------------------------------------
- ------------------------------------------------------------------
Annualized Total Return/1/
- -------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------
1-Year 9.01% 4.48% 8.21% 8.39% 9.20%
5-Year 5.98% 5.08% 5.35% 5.38% 5.99%
10-Year 7.95% 7.50% 7.48% 7.35% 7.96%
- ------------------------------------------------------------------
Tax-Free Yields
- -------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------
Distribution Rate 4.92% 4.72% 4.19% 4.35% 5.09%
SEC 30-Day Yield 4.19% 4.01% 3.45% 3.64% 4.39%
Taxable Equivalent Yield/2/ 6.46% 6.18% 5.32% 5.61% 6.76%
- -------------------------------------------------------------------
- ------------------------------------------------------------------
Index Comparison/3/
- ------------------------------------------------------------------
[MOUNTAIN CHART APPEARS HERE]
Nuveen Flagship
Nuveen Flagship Tennessee
Tennessee Municipal Lehman Brothers
Municipal Bond Fund Municipal
Bond Fund (NAV) (Offer) Bond Index
5/88 10,000 9,580 10,000
5/89 11,391 10,912 11,149
5/90 11,992 11,488 11,965
5/91 13,143 12,591 13,171
5/92 14,281 13,681 14,466
5/93 16,080 15,405 16,195
5/94 16,329 15,643 16,595
5/95 17,643 16,902 18,107
5/96 18,310 17,541 18,934
5/97 19,722 18,894 20,505
5/98 21,504 20,601 22,430
- ------------------------------------------------------------------
/1/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
/2/ Based on SEC yield and a combined federal and state income tax rate of
35.1%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/3/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust III:
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Flagship Alabama Municipal Bond Fund,
Nuveen Flagship Georgia Municipal Bond Fund, Nuveen Flagship Louisiana Municipal
Bond Fund, Nuveen Flagship North Carolina Municipal Bond Fund, Nuveen Flagship
South Carolina Municipal Bond Fund, and Nuveen Flagship Tennessee Municipal Bond
Fund (collectively, the "Funds") (the six portfolios constituting the Nuveen
Flagship Multistate Trust III (a Massachusetts business trust)), as of May 31,
1998, and the related statements of operations, statements of changes in net
assets and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
statements and financial highlights for the Funds for the years ended May 31,
1997 and prior were audited by other auditors whose report dated July 11, 1997,
expressed an unqualified opinion on those financial statements and financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1998, by correspondence with the custodian and brokers. As to securities
purchased but not received, we requested confirmation from brokers and, when
replies were not received, we carried out alternative auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the Nuveen
Flagship Alabama Municipal Bond Fund, Nuveen Flagship Georgia Municipal Bond
Fund, Nuveen Flagship Louisiana Municipal Bond Fund, Nuveen Flagship North
Carolina Municipal Bond Fund, Nuveen Flagship South Carolina Municipal Bond
Fund, and Nuveen Flagship Tennessee Municipal Bond Fund of the Nuveen Flagship
Multistate Trust III as of May 31, 1998, and the results of their operations,
the changes in their net assets, and the financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 17, 1998
16
<PAGE>
Portfolio of Investments
Nuveen Flagship Alabama Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Goods--3.4%
$250,000 Tallassee, Alabama, Industrial Development Board, Revenue Refunding, 8/06 at 102 A1 $ 271,670
Dow/United Tech Composite Products, Series A, 6.100%, 8/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations--12.3%
495,000 The Board of Trustees of Alabama Agricultural and Mechanical 11/05 at 102 AAA 511,518
University, Revenue Bonds, Series 1995, 5.500%, 11/01/20
150,000 The Private Educational Building Authority of the City of Birmingham 6/06 at 102 A3 158,909
(Alabama), Birmingham-Southern College, Tuition Revenue Bonds, Series
1996, 6.000%, 12/01/21
200,000 Troy, Alabama, State University, Troy State University/City of Troy 6/07 at 102 AAA 211,074
Project, 5.650%, 6/01/27
110,000 University of South Alabama, University Revenues Refunding Tuition, 5/06 at 102 AAA 110,254
5.000%, 11/15/15
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products--7.5%
100,000 The Industrial Development Board of the Town of Courtland, Alabama, 9/05 at 102 Baa1 108,825
Solid Waste Disposal Revenue Bonds (Champion International
Corporation Project), Series 1995A, 6.500%, 9/01/25
(Alternative Minimum Tax)
500,000 The Industrial Development Board of the City of Phoenix City, Alabama, 4/08 at 102 A- 494,860
Environmental Improvement Revenue Refunding Bonds (Mead Coated
Board Project), Series 1998A, 5.300%, 4/01/27 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care--17.4%
600,000 Alabama Special Care Facilities Financing Authority of Birmingham, 11/05 at 101 AA+ 575,778
Hospital Revenue Bonds (Daughters of Charity National Health
System--Providence Hospital and St. Vincent's Hospital),
Series 19, 5.000%, 11/01/25
150,000 The Special Care Facilities Financing Authority of the City of 6/07 at 102 AAA 155,006
Birmingham, Childrens Hospital (Alabama), Health Care Facility
Revenue Bonds, Childrens Hospital, Series 1997, 5.500%, 6/01/22
200,000 The Special Care Facilities Financing Authority of the City of 8/05 at 102 AAA 213,536
Birmingham-Carraway, Revenue Bonds, Series 1995A (Carraway Methodist
Health Systems), 5.875%, 8/15/15
100,000 The Colbert County-Northwest Alabama Health Care Authority, Health Care 6/05 at 102 AAA 106,579
Facilities Revenue Bonds, Series 1995 (Helen Keller Hospital),
5.750%, 6/01/15
100,000 The Health Care Authority of Lauderdale County and the City of 7/06 at 102 AAA 105,637
Florence, Alabama, Revenue Refunding Bonds, Series 1996 (Eliza Coffee
Memorial Hospital), 5.750%, 7/01/19
150,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental 7/05 at 102 AAA 167,055
Control Facilities Financing Authority, Hospital Revenue Bonds, 1995
Series A (Hospital Auxilio Mutuo Obligated Group Project), 6.250%, 7/01/24
70,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental 8/05 at 101 1/2 AAA 76,243
Control Facilities Financing Authority, Hospital Revenue Refunding
Bonds, 1995 Series A, FHA Insured Mortgage-Doctor Pila Hospital Project,
5.875%, 8/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family--1.4%
80,000 Alabama Housing Finance Authority, Single Family Mortgage Revenue Bonds 4/05 at 102 Aaa 84,865
(Collateralized Home Mortgage Revenue Bond Program), 1995 Series A-1,
6.400%, 10/01/20 (Alternative Minimum Tax)
25,000 Alabama Housing Finance Authority, Single Family Mortgage Revenue Bonds 4/04 at 102 Aaa 26,862
(Collateralized Home Mortgage Revenue Bond Program), 1994 Series A-1,
6.600%, 4/01/19
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Alabama Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General - 8.5%
$ 180,000 City of Mobile, Alabama, General Obligation Refunding Warrants, 2/06 at 102 AAA $ 191,839
Series 1996, 5.750%, 2/15/16
200,000 Northport, Alabama, Series A, 5.700%, 3/01/21 3/06 at 102 AAA 210,688
Commonwealth of Puerto Rico, Public Improvement Bonds of 1994 (General
Obligation Bonds):
150,000 6.450%, 7/01/17 7/04 at 102 AAA 170,184
100,000 6.500%, 7/01/23 7/04 at 101 1/2 AAA 113,722
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 8.3%
50,000 Alabama Public School and College Authority, Refunding Bonds, No Opt. Call Aa 53,646
Series 1993A, 6.000%, 8/01/02
600,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/06 at 101 1/2 A 613,014
Bonds, Series Y of 1996, 5.500%, 7/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 6.5%
200,000 Alabama State Docks Department, Docks Facilities Revenue Bonds, 10/06 at 102 AAA 219,096
Series 1996, 6.100%, 10/01/13 (Alternative Minimum Tax)
200,000 Alabama State Docks Department, Docks Facilities Revenue Bonds, 10/07 at 102 AAA 202,784
Series 1997, 5.375%, 10/01/17 (Alternative Minimum Tax)
100,000 The Huntsville-Madison County Airport Authority, Airport Revenue 1/07 at 102 AAA 101,202
Bonds, Series 1997, 5.400%, 7/01/19 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 2.7%
25,000 The Health Care Authority of the City of Huntsville (Alabama), 6/04 at 102 AAA 28,392
Health Care Facilities Revenue Bonds, Series 1992-B, 6.500%,
6/01/13 (Pre-refunded to 6/01/04)
165,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series 7/04 at 102 BBB+*** 186,899
1994-T, 6.375%, 7/01/24 (Pre-refunded to 7/01/04)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 7.7%
150,000 Clarke-Mobile Counties Gas District (Alabama), Gas Revenue Bonds, 12/06 at 102 AAA 157,536
Series 1996, 5.600%, 12/01/17
90,000 City of Huntsville, Alabama, Electric System Revenue Warrants, 12/03 at 102 AA 98,779
Series 1994, 6.100%, 12/01/10
200,000 The Utilities Board of the City of Oneonta (Alabama), Utility 11/06 at 102 AAA 207,216
Revenue Bonds, Series 1997, 5.500%, 11/01/23
150,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly No Opt. Call AAA 157,136
Puerto Rico Commonwealth Water Resource Authority, Series Aa,
5.000%, 7/01/07
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 18.6%
25,000 Alabama Water Pollution Control Authority, Revolving Fund Loan 8/05 at 100 AAA 28,102
Bonds, Series 1994, 6.750%, 8/15/17
400,000 The Utilities Board of the City of Bayou La Batre (Alabama), Water 3/07 at 102 AA 417,244
and Sewer Revenue Refunding and Improvement Bonds, Series 1997,
5.750%, 3/01/27
375,000 Cherokee County Water Authority, Alabama, Water Revenue Bonds, 4/07 at 102 AAA 398,610
Series 1997, 5.750%, 4/01/22
Jefferson County, Alabama, Sewer Revenue Refunding Warrants, Series
1997-A:
100,000 5.625%, 2/01/22 2/07 at 101 AAA 104,783
200,000 5.375%, 2/01/27 2/07 at 100 AAA 203,100
100,000 Jefferson County, Alabama, Sewer Revenue Warrants, Series 1997-D, 2/07 at 101 AAA 105,941
5.750%, 2/01/27
100,000 Mobile Alabama Water and Sewer Commission, Water and Sewer Revenue, 1/05 at 102 AAA 106,248
Series 95, 5.500%, 1/01/10
125,000 Prichard, Alabama, Waterworks and Sewer Board, Water and Sewer Revenue 11/04 at 102 AAA 138,150
Refunding, 6.125%, 11/15/14
- -----------------------------------------------------------------------------------------------------------------------------------
$ 7,265,000 Total Investments - (cost $7,157,821) - 94.3% 7,592,982
===========------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Temporary Investments in Short-Term Municipal Securities - 3.7%
$ 300,000 Columbia IDB (Alabama Power), Variable Rate Demand Bonds, 4.000%, 10/01/22+ A-1 $ 300,000
===========------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.0% 157,437
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $8,050,419
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There
may be other call provisions at varying prices at later
dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal and
interest. Securities are normally considered to be
equivalent to AAA rated securities.
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a
short-term security. The rate disclosed is that currently in
effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
19
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Cyclical - 0.4%
$ 500,000 White County, Georgia, Development Authority, Industrial Development 6/02 at 102 BBB+ $ 537,720
Revenue Refunding, Springs Industries, Inc., 6.850%, 6/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 3.7%
2,000,000 Albany Dougherty Payroll Development Authority (Georgia), Solid Waste 5/08 at 101 AA 2,005,220
Disposal Revenue Bonds (The Procter and Gamble Paper Products Company
Project), 1998 Series, 5.300%, 5/15/26 (Alternative Minimum Tax) (DD)
1,000,000 Development Authority of Cartersville (Georgia), Water and Wastewater 5/02 at 102 A+ 1,091,160
Facilities Revenue Bonds, Series 1992 (Anheuser-Busch Project), 6.750%,
2/01/12 (Alternative Minimum Tax)
2,000,000 Development Authority of Cartersville (Georgia), Sewage Facilities 5/07 at 101 A+ 2,140,140
Refunding Revenue Bonds (Anheuser-Busch Project), Series 1997, 6.125%,
5/01/27 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 1.2%
1,000,000 Private Colleges and Universities Authority (Georgia), Revenue Bonds No Opt. Call AAA 1,189,910
(Mercer University Project), Series 1991, 6.500%, 11/01/15
500,000 Private Colleges and Universities Authority, Georgia, Revenue 6/04 at 102 AAA 551,950
Refunding (Spelman College Project), 6.200%, 6/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 3.0%
1,500,000 Brunswick and Glynn County (Georgia), Development Authority, Revenue 3/08 at 102 Baa2 1,515,345
Refunding Bonds, Series 1998 (Georgia Pacific Corporation Project),
5.550%, 3/01/26 (Alternative Minimum Tax)
1,000,000 Savannah, Georgia, Economic Development Authority, Pollution Control No Opt. Call A1 1,134,870
Revenue Refunding, Union Camp Corporation Project, 6.150%, 3/01/17
500,000 Wayne County Development Authority, Solid Waste Disposal Revenue Bonds 7/00 at 102 BBB+ 539,790
(ITT Rayonier, Inc. Project), Series 1990, 8.000%, 7/01/15
(Alternative Minimum Tax)
1,000,000 Wayne County Development Authority, Pollution Control Revenue 5/03 at 102 BBB+ 1,070,040
Refunding (ITT Rayonier Inc. Project), 6.100%, 11/01/07
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 8.9%
3,000,000 Chatham County Hospital Authority (Savannah, Georgia), Hospital 1/07 at 102 AAA 3,026,550
Revenue Refunding and Improvement Bonds (Memorial Medical Center,
Inc.), Series 1996A, 5.250%, 1/01/16
500,000 Hospital Authority of Cherokee County, Georgia, Revenue Certificates, 12/00 at 102 AAA 543,670
Tax Exempt Series 1990, 7.250%, 12/01/15
1,000,000 Coffee County Hospital Authority (Georgia), Revenue Anticipation 12/06 at 102 N/R 1,041,600
Certificates (Coffee Regional Medical Center, Inc. Project), Series
1997A, 6.750%, 12/01/16
Development Authority of the City of Dalton (Georgia), Revenue Certificates
(Hamilton Health Care System), Series 1996:
2,000,000 5.500%, 8/15/26 No Opt. Call AAA 2,137,540
2,000,000 5.250%, 8/15/26 2/07 at 102 AAA 2,003,080
2,000,000 Development Authority of the City of Dalton (Georgia), Revenue 2/08 at 101 Aaa 1,933,320
Certificates (Hamilton Health Care System), Series 1998, 5.000%, 8/15/28
1,000,000 The Hospital Authority of Hall County and the City of Gainesville, 10/05 at 102 AAA 1,081,070
Revenue Anticipation Certificates (Northeast Georgia Healthcare Project),
Series 1995, 6.000%, 10/01/20
1,000,000 Hospital Authority of Gwinnett County, Georgia, Revenue Anticipation 9/07 at 101 AAA 1,001,600
Certificates (Gwinnett Hospital System, Inc. Project), Series 1997A,
5.250%, 9/01/27
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Housing/Multifamily -- 12.7%
$1,840,000 Housing Authority of the City of Augusta, Georgia, Mortgage Revenue 5/05 at 102 Aa $1,952,295
Refunding Bonds, Series 1995A (FHA Insured Mortgage Loan--River Glen
Apartments Section 8 Assisted Project), 6.500%, 5/01/27
755,000 Housing Authority of Clayton County (Georgia), Multifamily Housing 12/05 at 102 AAA 776,185
Revenue Bonds, Series 1995 (The Advantages Project), 5.700%, 12/01/16
1,000,000 Housing Authority of the County of DeKalb, Georgia, Multifamily 1/05 at 102 AAA 1,094,200
Housing Revenue Bonds (The Lakes at Indian Creek Apartments Project),
Series 1994, 7.150%, 1/01/25 (Alternative Minimum Tax)
3,470,000 Housing Authority of the County of DeKalb, Georgia, Multifamily 1/06 at 102 A 3,670,046
Housing Revenue Bonds (Regency Woods I and II Project), Senior Series
1996A, 6.500%, 1/01/26
4,000,000 Housing Authority of Fulton County, Georgia, Multifamily Housing 7/06 at 102 A 4,214,160
Revenue Bonds (Concorde Place Apartments Project), Series 1996A,
6.375%, 1/01/27 (Alternative Minimum Tax)
4,715,000 Lawrenceville, Georgia, Housing Authority, Multifamily Revenue, 6/07 at 102 AAA 5,118,745
Knollwood Park Apartments Project, 6.250%, 12/01/29 (Alternative
Minimum Tax)
1,300,000 Macon, Georgia, Housing Authority, Mortgage Revenue Refunding, The 10/04 at 102 Aaa 1,378,923
Vistas, Series A, 6.450%, 4/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 9.7%
Housing Authority of Fulton County, Georgia, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program), Series 1995 A:
310,000 6.550%, 3/01/18 (Alternative Minimum Tax) 3/05 at 102 AAA 331,455
105,000 6.600%, 3/01/28 (Alternative Minimum Tax) 3/05 at 102 AAA 110,766
Housing Authority of Fulton County, Georgia, Single Family Mortgage
Revenue Refunding Bonds (GNMA Mortgage-Backed Securities Program),
Series 1996A:
415,000 6.125%, 9/01/18 (Alternative Minimum Tax) 9/06 at 102 AAA 436,746
655,000 6.200%, 9/01/27 (Alternative Minimum Tax) 9/06 at 102 AAA 690,508
Georgia Housing and Finance Authority, Single Family Mortgage Bonds,
1994 Series A (FHA Insured or VA Guaranteed Mortgage Loans):
1,215,000 6.500%, 12/01/17 (Alternative Minimum Tax) 12/04 at 102 AA+ 1,297,681
750,000 6.600%, 12/01/23 (Alternative Minimum Tax) 12/04 at 102 AA+ 803,333
1,000,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 3/05 at 102 AA+ 1,069,650
1995 Series A, Subseries A-2, 6.400%, 12/01/15 (Alternative Minimum Tax)
2,500,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/05 at 102 AA+ 2,688,125
1995 Series B, Subseries B-2, 6.550%, 12/01/27 (Alternative Minimum Tax)
3,355,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/06 at 102 AA+ 3,587,099
1996 Series A, Subseries A-2, 6.450%, 12/01/27 (Alternative Minimum Tax)
225,000 Georgia Residential Finance Authority, Home Ownership Mortgage 12/99 at 103 AA+ 235,771
Bonds, 1989 Series D (Conventional Mortgage Loans), 7.800%, 6/01/21
(Alternative Minimum Tax)
285,000 Georgia Residential Finance Authority, Home Ownership Mortgage 12/00 at 103 AA+ 300,855
Bonds, 1990 Series A (FHA Insured or VA Guaranteed Mortgage Loans),
7.750%, 6/01/18 (Alternative Minimum Tax)
1,455,000 Georgia Residential Finance Authority, Home Ownership Mortgage 12/01 at 103 AA+ 1,548,644
Bonds, 1991 Series A (FHA Insured or VA Guaranteed Mortgage Loans),
7.250%, 12/01/21 (Alternative Minimum Tax)
750,000 Georgia Residential Finance Authority, Single Family Mortgage Bonds, 12/98 at 103 AA+ 776,085
1988 Series B (FHA Insured or VA Guaranteed Mortgage Loans), 8.000%,
12/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 8.4%
Peach County, Georgia, School District:
1,015,000 6.300%, 2/01/14 2/05 at 102 AAA 1,134,303
3,810,000 6.400%, 2/01/19 2/05 at 102 AAA 4,267,848
4,870,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997, 7/07 at 101 1/2 A 4,927,369
5.375%, 7/01/25
1,500,000 Washington County, Georgia, School District, 6.875%, 1/01/14 1/05 at 102 AAA 1,747,350
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited - 18.3%
$ 570,000 Development Authority of Burke County (Georgia), Industrial 2/01 at 102 A $ 619,174
Development Revenue Bonds (Georgia Safe Corporation Project),
Series 1991, 7.500%, 2/01/11 (Alternative Minimum Tax)
1,150,000 Burke County Economic Development Authority (Georgia), Revenue Bonds 12/02 at 102 A 1,275,971
(Ritz Instrument Transformers, Inc. Project), Series 1991A, 7.250%,
12/01/11 (Alternative Minimum Tax)
1,750,000 Association County Commissioners of Georgia Leasing Program (Butts 12/04 at 102 AAA 1,980,230
County, Georgia Public Purpose Project), Series 1994, Certificates
of Participation, 6.750%, 12/01/14
1,000,000 The Hospital Authority of Clarke County, Georgia, Hospital Revenue 1/07 at 100 AAA 970,360
Certificates (Athens Regional Medical Center Project), Series 1996,
5.000%, 1/01/27
1,215,000 Clayton County Solid Waste Management Authority (Georgia), Revenue 2/02 at 102 AA 1,308,361
Bonds, Series 1992A, 6.500%, 2/01/12
3,000,000 Cobb-Marietta Coliseum and Exhibit Hall Authority (Georgia), Revenue 10/19 at 100 AAA 3,291,930
Refunding Bonds, Series 1993, 5.625%, 10/01/26
800,000 Downtown Marietta Development Authority (Georgia), Revenue Bonds, 1/02 at 102 Aaa 880,904
Series 1992, 6.600%, 1/01/19
1,000,000 Downtown Smyrna Development Authority (Georgia), Revenue Bonds, 2/05 at 102 AAA 1,151,260
Series 1994, 6.600%, 2/01/17
2,765,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax No Opt. Call AA- 3,207,483
Revenue Bonds, Refunding, Series N, 6.250%, 7/01/18
500,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax No Opt. Call AAA 584,315
Revenue Bonds, Refunding, Series P, 6.250%, 7/01/20
Puerto Rico Highway and Transportation Authority, Highway Revenue
Bonds, Series Y of 1996:
2,000,000 5.500%, 7/01/26 7/06 at 101 1/2 A 2,043,380
6,000,000 5.500%, 7/01/36 7/16 at 100 A 6,288,300
125,000 Puerto Rico Infrastructure Finance Authority, Series 1988A, 7.750%, 7/98 at 102 BBB+ 127,866
7/01/08
1,055,000 Upper Oconee Basin Water Authority (Georgia), Revenue Bonds, Series 7/08 at 102 AAA 1,058,703
1997, 5.250%, 7/01/27
1,250,000 Hospital Authority of Ware County (Georgia), Revenue Anticipation 3/02 at 102 AAA 1,364,163
Certificates, Series 1992A (Satilla Park Hospital), 6.625%, 3/01/15
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 0.7%
1,000,000 City of Atlanta, Georgia, Airport Facilities Revenue Refunding 1/07 at 101 AAA 1,050,960
Bonds, Series 1996, 5.250%, 1/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 19.6%
Chatham County Hospital Authority, Hospital Revenue Bonds (Memorial
Medical Center, Inc.) (Savannah, Georgia), Series 1990A:
100,000 7.000%, 1/01/10 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 109,018
1,130,000 7.000%, 1/01/21 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 1,231,903
505,000 Cherokee County, Water and Sewerage Authority (Georgia), Revenue No Opt. Call AAA 699,890
Bonds, Series 1985, 9.750%, 8/01/09
6,240,000 Development Authority of Colquitt County, Georgia, Subordinated Zero No Opt. Call Aaa 1,808,040
Coupon Revenue Bonds (Southern Care Corporation Facility), Series
1991C, 0.000%, 12/01/21
500,000 Hospital Authority of Colquitt County, Georgia, Hospital Revenue 3/02 at 102 AAA 554,330
Certificates, Series 1992, 6.700%,
3/01/12 (Pre-refunded to 3/01/02)
1,000,000 City of Conyers (Georgia), Water and Sewerage Revenue Bonds, Series 7/04 at 102 AAA 1,160,310
1994A, 6.600%, 7/01/15
Fulco Hospital Authority, Revenue Anticipation Certificates (Georgia
Baptist Health Care System Project), Series 1992A:
3,000,000 6.250%, 9/01/13 (Pre-refunded to 9/01/02) 9/02 at 102 Baa1*** 3,294,210
2,600,000 6.375%, 9/01/22 (Pre-refunded to 9/01/02) 9/02 at 102 Baa1*** 2,867,540
2,250,000 Fulco Hospital Authority, Refunding Revenue Anticipation 9/02 at 102 Baa1*** 2,481,525
Certificates (Georgia Baptist Health Care System Project),
Series 1992B, 6.375%, 9/01/22 (Pre-refunded to 9/01/02)
500,000 City of Gainesville, Georgia, Water and Sewer Revenue Bonds, Series 11/00 at 102 AAA 546,950
1990B, 7.200%, 11/15/10 (Pre-refunded to 11/15/00)
1,855,000 Marietta Development Authority (Life College, Inc.), 7.250%, 12/99 at 102 AAA 1,982,976
12/01/19 (Pre-refunded to 12/01/99)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 1,200,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax 7/99 at 102 AAA $1,266,828
Revenue Bonds, Series L, 7.200%, 7/01/20 (Pre-refunded to 7/01/99)
1,650,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax 7/04 at 102 AAA 1,912,994
Revenue Bonds, Second Indenture Series, Series 1994A, 6.900%, 7/01/20
(Pre-refunded to 7/01/04)
425,000 Puerto Rico Infrastructure Finance Authority, Series 1988A, 7/98 at 102 BBB+*** 434,907
7.750%, 7/01/08 (Pre-refunded to 7/01/98)
10,800,000 Development Authority of Richmond County, Georgia, Subordinated No Opt. Call Aaa 3,129,300
Zero Coupon Revenue Bonds (Southern Care Corporation Facility),
Series 1991C, 0.000%, 12/01/21
4,810,000 Richmond County Georgia Development Authority Revenue, 1st No Opt. Call Aaa 1,393,698
Mortgage, Series A, 0.000%, 12/01/21
500,000 Hospital Authority of Ware County (Georgia), Revenue Anticipation 3/01 at 102 AAA 535,945
Certificates, Series 1991, 7.125%, 3/01/15 (Pre-refunded to 3/01/01)
8,800,000 Washington, Georgia, Wilkes Payroll Development Authority, Series No Opt. Call Aaa 2,549,800
C, 0.000%, 12/01/21
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 8.9%
1,800,000 Development Authority of Appling County (Georgia), Pollution 1/04 at 101 AAA 2,028,330
Control Revenue Bonds (Oglethorpe Power Corporation Hatch Project),
Series 1994, 7.150%, 1/01/21
1,500,000 Municipal Electric Authority of Georgia, General Power Revenue 1/15 at 100 A 1,710,825
Bonds, 1992B Series, 6.375%, 1/01/16
Municipal Electric Authority of Georgia, Power Revenue Bonds,
Series Z:
1,000,000 5.500%, 1/01/12 1/10 at 100 AAA 1,074,420
1,000,000 5.500%, 1/01/20 No Opt. Call AAA 1,064,150
Development Authority of Monroe County (Georgia), Pollution Control
Revenue Bonds (Oglethorpe Power Corporation Scherer Project),
Series 1992A,
500,000 6.750%, 1/01/10 No Opt. Call A 588,065
1,000,000 6.800%, 1/01/12 No Opt. Call A 1,186,960
2,000,000 Municipal Electric Authority, Georgia, Project One, Series A, 1/07 at 101 AAA 2,008,840
Refunding, 5.125%, 1/01/16
1,250,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series 7/04 at 100 BBB+ 1,267,338
T, 5.500%, 7/01/20
1,500,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly No Opt. Call AAA 588,720
Puerto Rico Commonwealth Water Resource Authority, Capital
Appreciation Refunding, Series N, 0.000%, 7/01/17
3,000,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly No Opt. Call AAA 1,177,440
Puerto Rico Commonwealth Water Resource Authority, Series O,
0.000%, 7/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 4.2%
City of Brunswick, Georgia, Water and Sewerage Revenue Refunding and
Improvement Bonds, Series 1992:
500,000 6.000%, 10/01/11 No Opt. Call AAA 568,369
400,000 6.100%, 10/01/19 No Opt. Call AAA 460,103
2,000,000 Cherokee County (Georgia), Water and Sewerage Authority, Water and No Opt. Call AAA 2,157,179
Sewerage Revenue Refunding and Improvements Bonds, Series
1993, 5.500%, 8/01/23
</TABLE>
23
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Water and Sewer (continued)
$ 1,500,000 Henry County, Georgia, and Henry County Water and Sewerage No Opt. Call AAA $ 1,739,459
Authority, Water and Sewerage Revenue Bonds, Series 1996,
6.150%, 2/01/20
1,000,000 City of Milledgeville (Georgia), Water and Sewerage Revenue and No Opt. Call AAA 1,132,829
Refunding Bonds, Series 1996, 6.000%, 12/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
$157,790,000 Total Investments - (cost $130,363,178) - 99.7% 142,619,268
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.3% 459,143
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $143,078,411
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent
public accountants): Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at
varying prices at later dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the
timely payment of principal and interest. Securities are normally
considered to be equivalent to AAA rated securities.
(DD) Security purchased on a delayed delivery basis (note 1).
------------------------------------------------------------
N/R Investment is not rated.
See accompanying notes to financial statements.
24
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials -- 1.5%
$ 1,500,000 Saint Charles Parish, Louisiana, Pollution Control Revenue, Union 11/02 at 102 BBB $1,664,550
Carbide Project, 7.350%, 11/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations -- 4.5%
750,000 Louisiana Public Facilities Authority, Revenue Refunding, Loyola 10/99 at 102 A+ 797,370
University Project Series, 1989, A, 7.250%, 10/01/09
380,000 Louisiana Public Facilities Authority, Revenue Refunding, College and 4/02 at 102 A+ 419,763
University, Loyola University, 6.750%, 4/01/10
775,000 Louisiana Public Facilities Authority, Student Loan Revenue Bonds, No Opt. Call Aaa 822,461
6.600%, 3/01/03 (Alternative Minimum Tax)
1,000,000 Louisiana Public Facilities Authority, Revenue Bonds, Tulane 12/07 at 102 AAA 1,049,430
University of Louisiana, 5.600%, 12/15/27
1,000,000 Louisiana Public Facilities Authority, Revenue and Refunding Bonds 9/07 at 102 AAA 1,002,440
(Xavier University of Louisiana Project), Series 1997, 5.250%, 9/01/27
1,000,000 Louisiana Public Facilities Authority, Revenue and Refunding Bonds 2/08 at 102 AAA 969,850
(Dillard University Project), Series 1998, 5.000%, 2/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
Energy -- 4.9%
1,000,000 Lake Charles, Louisiana, Harbor and Terminal District Port Facilities 12/02 at 102 BBB 1,103,480
Revenue Refunding, Occidental Petroleum Corporation, 7.200%, 12/01/20
500,000 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue 9/01 at 102 A 547,465
Refunding, Loop Inc., First Stage, Series B, 7.200%, 9/01/08
475,000 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue 9/00 at 102 A 515,917
Refunding, First Stage, Series E, Loop Inc., 7.600%, 9/01/10
3,150,000 St. Bernard Parish, Louisiana, Exempt Facility Revenue, Mobil Oil 11/06 at 102 AA 3,364,767
Corporation Project, 5.900%, 11/01/26 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products -- 4.4%
1,640,000 Parish of DeSoto, Louisiana, Environmental Improvement Revenue 6/05 at 102 A- 1,816,005
Refunding Bonds, 1995 Series B (International Paper Company
Project), 6.550%, 4/01/19 (Alternative Minimum Tax)
3,000,000 Natchitoches Parish, Louisiana, Solid Waste Disposal Revenue, 12/03 at 102 A- 3,116,010
Willamette Industries Project, 5.875%, 12/01/23
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care -- 17.7%
Louisiana Public Facilities Authority, Hospital Revenue Refunding,
Lafayette General Medical Center Project:
1,000,000 6.400%, 10/01/12 10/02 at 102 AAA 1,085,300
2,000,000 6.500%, 10/01/22 10/02 at 102 AAA 2,184,740
1,000,000 Louisiana Public Facilities Authority, Hospital Revenue, Our Lady Of 12/03 at 102 AAA 1,048,120
The Lake Regional Medical Center, 5.900%, 12/03/21
1,000,000 Louisiana Public Facilities Authority, Hospital Revenue Refunding, 7/07 at 101 AAA 1,009,800
Womans Hospital Foundation Project, 5.375%, 10/01/22
1,325,000 Louisiana Public Facilities Authority, Revenue Bonds, Series 1992-B 5/02 at 102 AAA 1,437,320
(Alton Ochsner Medical Foundation Project), 6.500%, 5/15/22
3,400,000 Louisiana Public Facilities Authority, Revenue Refunding, Health No Opt. Call AA+ 3,382,490
Facilities, Sisters of Mercy, Series A, 5.000%, 6/01/19
</TABLE>
25
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
$ 2,500,000 Louisiana Public Facilities Authority, Revenue Bonds (General Health, 11/04 at 102 AAA $2,781,550
Inc. Project), Series 1994, 6.375%, 11/01/24
500,000 Louisiana Public Facilities Authority, Mary Bird Perkins Cancer Center, 1/05 at 102 AAA 551,215
6.200%, 1/01/19
2,180,000 St. Tammany Parish Hospital Service District No. 2, State of Louisiana, 10/04 at 102 AAA 2,408,355
Hospital Revenue Bonds, Series 1994, 6.250%, 10/01/14
885,000 Hospital Service District No. 1 of the Parish of Tangipahoa, State of 2/04 at 102 AAA 970,783
Louisiana, Hospital Revenue Bonds (Series 1994), 6.250%, 2/01/24
3,000,000 Hospital Service District No. 1 of the Parish of Terrebonne, State of 4/08 at 102 AAA 3,027,270
Louisiana Hospital Revenue and Refunding Bonds (Terrebonne General
Medical Center Project), Series 1998, 5.375%, 4/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 1.9%
750,000 Lake Charles, Louisiana, Non Profit Housing Development Corporation No Opt. Call AAA 755,813
Mortgage Revenue Refunding, Chateau Project, Series A, 7.875%, 2/15/25
735,000 Louisiana Public Facilities Authority, Walmsley Housing Corporation, No Opt. Call AAA 796,799
Series A, 7.500%, 6/01/21
500,000 Louisiana Public Facilities Authority, Multifamily Housing, National 11/01 at 102 AA 540,005
Housing Corporation, 7.750%, 11/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 11.8%
1,255,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage 8/00 at 102 Aaa 1,316,683
Revenue Bonds (GNMA Mortgage-Backed Securities Program), Series
1990A, 7.875%, 8/01/23 (Alternative Minimum Tax)
2,235,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage 10/07 at 102 Aaa 2,315,214
Revenue Refunding Bonds (GNMA and FNMA Mortgage-Backed Securities
Program), Series 1997D, 5.900%, 10/01/30 (Alternative Minimum Tax)
330,000 Louisiana Housing Finance Agency, Single Family Mortgage Revenue Bonds, 6/05 at 102 Aaa 352,176
Series 1995A-2, 6.550%, 12/01/26 (Alternative Minimum Tax)
Louisiana Housing Finance Agency, Mortgage Revenue Refunding,
Single Family, Series B 2:
1,000,000 5.600%, 6/01/17 (Alternative Minimum Tax) 6/07 at 102 Aaa 1,020,590
2,500,000 5.750%, 6/01/28 (Alternative Minimum Tax) 6/07 at 102 Aaa 2,553,150
2,505,000 Louisiana Housing Finance Agency, Mortgage Revenue Refunding, Single 12/07 at 102 Aaa 2,560,010
Family, Series C 1, 5.750%, 12/01/28 (Alternative Minimum Tax)
530,000 New Orleans, Louisiana, Home Mortgage Authority, Single Family Mortgage 1/00 at 102 Aaa 552,742
Revenue, Series C 1, 7.750%, 12/01/22 (Alternative Minimum Tax)
New Orleans, Louisiana, Home Mortgage Authority, Single Family Mortgage
Revenue, Series A:
1,000,000 6.100%, 12/01/29 (Alternative Minimum Tax) 12/06 at 102 Aaa 1,047,390
1,000,000 5.850%, 12/01/30 (Alternative Minimum Tax) 12/07 at 102 Aaa 1,030,400
236,046 St. Bernard Parish, Louisiana, Home Mortgage Authority, Single Family No Opt. Call A1 260,866
Mortgage Revenue Refunding, Series A, 8.000%, 3/25/12
125,265 St. Mary, Louisiana, Public Tollroad Financing Authority, Single Family No Opt. Call Aaa 139,774
Revenue Refunding, Mortgage, Series A, 7.625%, 3/25/12
- -----------------------------------------------------------------------------------------------------------------------------------
Long Term Care -- 4.7%
3,000,000 Louisiana Housing Finance Agency, Mortgage Revenue Bonds (GNMA 9/05 at 103 AAA 3,330,180
Collateralized Mortgage Loan -- St. Dominic Assisted Care Facility),
Series 1995, 6.950%, 9/01/36
1,740,000 Louisiana Housing Finance Agency, Mortgage Revenue Bonds, Villa Maria 1/04 at 101 AAA 1,881,671
Retirement Center Project, 7.100%, 1/20/35
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 14.2%
500,000 Louisiana State, Refunding, Series B 5.625%, 8/01/13 No Opt. Call AAA 545,185
New Orleans, Louisiana, Refunding:
2,000,000 0.000%, 9/01/10 No Opt. Call AAA 1,129,080
5,785,000 0.000%, 9/01/16 No Opt. Call AAA 2,310,992
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General (continued)
$2,000,000 Orleans Levee District (A Political Subdivision of the State of 12/05 at 103 AAA $2,186,880
Louisiana), Levee Improvement Bonds, Series 1986, Serial and
Term Trust Receipts Series 1995A, 5.950%, 11/01/14
3,000,000 Orleans Parishwide School District, General Obligation Bonds, Series 3/06 at 100 AAA 2,948,370
1996, 5.000%, 9/01/20
1,000,000 Orleans Parishwide School District, General Obligation School Bonds, 3/08 at 100 Aaa 985,580
Series 1998A, 5.125%, 9/01/22
13,875,000 Orleans Parish, Louisiana, School Board Refunding, 0.000%, 2/01/15 No Opt. Call AAA 5,800,583
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 12.1%
750,000 Parish of East Baton Rouge, Louisiana, Public Improvement Sales 02/03 at 101 1/2 AAA 728,738
Tax Bonds, Series ST-1993A, 4.900%, 2/01/18
1,000,000 Jefferson Sales Tax District, Parish of Jefferson, State of 12/02 at 100 AAA 1,105,410
Louisiana, Special Sales Tax Revenue Bonds, Series 1991B,
6.750%, 12/01/06
2,000,000 Sales Tax School Bonds Refunding, Series 1998, School Board of the No Opt. Call AAA 1,198,260
Parish of Jefferson, State of Louisiana, 0.000%, 3/01/09
1,530,000 Lafayette Parish, Louisiana, School Board Sales Tax Revenue, 4/04 at 101 AAA 1,522,717
4.875%, 4/01/13
685,000 Louisiana Public Facilities Authority, Revenue Refunding Bonds 8/99 at 101 1/2 AAA 723,655
(Jefferson Parish Eastbank Office Building Project), Series
1989, 7.700%, 8/01/10
1,000,000 City of New Orleans, State of Louisiana, Refunding Certificates of 12/08 at 102 AAA 1,003,690
Indebtedness, Series 1998B, 5.000%, 12/01/12
1,500,000 Office Facilities Corporation, A Louisiana Non Profit Corporation, 12/01 at 103 BBB+ 1,685,040
Capital Facilities, 7.750%, 12/01/10
750,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 786,038
Bonds, Series Y of 1996, 5.500%, 7/01/36
250,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed, 7/07 at 101 1/2 A 249,655
Government Facilities, Series B, 5.250%, 7/01/21
1,500,000 Saint John Baptist Parish, Louisiana, Sales Tax District 12/99 at 103 Baa 1,608,105
Refunding, Series ST 1989, 7.800%, 12/01/14
2,995,000 City of Shreveport, State of Louisiana, Certificates of 10/09 at 102 AAA 2,962,894
Indebtedness, Series 1998-A, 5.000%, 10/01/16 (WI)
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 2.4%
505,000 New Orleans, Louisiana, Aviation Board Revenue, Series B 1, 10/07 at 102 AAA 514,807
5.450%, 10/01/27 (Alternative Minimum Tax)
2,140,000 City of Shreveport, State of Louisiana, Airport System Revenue 1/08 at 102 AAA 2,142,632
Bonds, Series 1997A, 5.375%, 1/01/28 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 11.4%
745,000 Louisiana Public Facilities Authority, Hospital Revenue Refunding No Opt. Call AAA 917,006
Bonds (Southern Baptist Hospitals, Inc. Project), Series 1986,
8.000%, 5/15/12
1,125,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds 10/02 at 102 A3 1,278,754
(Woman's Hospital Foundation Project), Series 1992, 7.250%,
10/01/22
500,000 Louisiana Public Facilities Authority, Revenue Refunding, Sisters 6/99 at 102 Aaa 527,295
of Mercy, Series B, 7.375%, 6/01/19 (Pre-refunded to 6/01/99)
10,000,000 Louisiana Public Facilities Authority, Series B, 0.000%, 12/01/19 No Opt. Call AAA 3,305,000
1,000,000 Louisiana State General Obligation Bonds, Series 1990, 7.125%, 9/00 at 102 Aaa 1,086,510
9/01/10 (Pre-refunded to 9/01/00)
525,000 Louisiana State Offshore Terminal Authority, Deepwater Port 9/00 at 102 N/R*** 574,670
Revenue Refunding, First Stage, Series E, Loop Inc, 7.600%,
9/01/10 (Pre-refunded to 9/01/00)
2,750,000 City of New Orleans Audubon Park Commission, Aquarium Revenue 4/02 at 102 N/R*** 3,164,123
Bonds, Series 1992, 8.000%, 4/01/12 (Pre-refunded to 4/01/02)
1,400,000 Ouachita Parish, Louisiana, Hospital Service District No. 1 7/01 at 102 A*** 1,560,762
Revenue, Glenwood Regional Medical Center, 7.500%, 7/01/21
(Pre-refunded to 7/01/01)
250,000 Shreveport, Louisiana, Home Mortgage Authority, Single Family No Opt. Call Aaa 282,778
Mortgage Revenue, Series A, 6.750%, 9/01/10
</TABLE>
27
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Utilities -- 7.1%
$ 3,000,000 Lake Charles, Louisiana, Harbor and Terminal District Port 8/02 at 103 A3 $ 3,438,300
Facilities Revenue Refunding, Trunkline LNG Company Project,
7.750%, 8/15/22
250,000 Puerto Rico Electric Power Authority, Power Revenue Refunding 7/05 at 100 BBB+ 250,135
Bonds, Series Z, 5.250%, 7/01/21
Saint Charles Parish, Louisiana, Environmental Improvement Revenue,
Louisiana Power and Light Company Project, Series A:
1,000,000 6.200%, 5/01/23 (Alternative Minimum Tax) 11/02 at 102 BBB 1,047,960
1,000,000 6.375%, 11/01/25 (Alternative Minimum Tax) 11/00 at 102 BBB- 1,040,199
500,000 Saint Charles Parish, Louisiana, Pollution Control Revenue, 12/99 at 103 Baa3 539,439
Louisiana Power and Light, 8.000%, 12/01/14
1,500,000 St. Charles Parish, Louisiana, Solid Waste Disposal Revenue, 12/02 at 102 BBB 1,640,069
Louisiana Power and Light Company Project, Series A, 7.000%,
12/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 1.5%
1,500,000 Louisiana Public Facilities Authority, Revenue Bonds, Series 2/03 at 101 AA- 1,631,624
1992, Baton Rouge Water Works Company Project, 6.400%, 2/01/10
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 126,211,311 Total Investments -- (cost $102,640,777) -- 100.1% 111,952,849
=============----------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 0.8%
$ 900,000 St. Charles Parish (Shell Oil), Variable Rate Demand Bonds, A-1+ 900,000
4.000%, 10/01/25+
=============----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (0.9)% (1,000,674)
--------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $111,852,175
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There may be
other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or Moody's
rating.
*** Securities are backed by an escrow or trust containing sufficient
U.S. government or U.S. government agency securities which
ensures the timely payment of principal and interest. Securities
are normally considered to be equivalent to AAA rated securities.
N/R Investment is not rated.
(WI) Security purchased on a when-issued basis (note 1).
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a short-
term security. The rate disclosed is that currently in effect.
This rate changes periodically based on market conditions or a
specified market index.
See accompanying notes to financial statements.
28
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Education and Civic Organizations -- 5.7%
North Carolina Educational Facilities Finance Agency, Revenue Bonds (High
Point College Project), Series 1989:
$ 165,000 7.050%, 12/01/05 12/00 at 102 A3 $ 174,468
175,000 7.100%, 12/01/06 12/00 at 102 A3 185,168
4,220,000 North Carolina Educational Facilities Finance Agency, Revenue 10/06 at 102 AA+ 4,204,175
Refunding, Duke University Project, Series B, 5.000%, 10/01/17
1,250,000 North Carolina Educational Facilities Finance Agency, Revenue Bonds 11/07 at 102 AA 1,245,338
(Wake Forest University), Series 1997, 5.000%, 11/01/17
1,000,000 State of North Carolina Education Assistance Authority (A Political 7/05 at 102 A 1,080,850
Subdivision of the State of North Carolina), Guaranteed Student Loan
Revenue Bonds, 1995 Series A (Subordinate Lien), 6.300%, 7/01/15
(Alternative Minimum Tax)
295,000 University of North Carolina, Chapel Hill Revenue, Student Fee, 6/01 at 102 AA+ 324,757
Student Recreation Center, 7.000%, 6/01/08
University of North Carolina, Chapel Hill Revenue Refunding, Utilities
System:
4,000,000 0.000%, 8/01/15 No Opt. Call AA 1,713,000
4,265,000 0.000%, 8/01/18 No Opt. Call AA 1,553,398
2,750,000 0.000%, 8/01/20 No Opt. Call AA 902,275
- -----------------------------------------------------------------------------------------------------------------------------------
Energy -- 0.6%
1,100,000 New Hanover County, North Carolina, Industrial Facilities and 7/02 at 102 BBB 1,185,151
Pollution Control Financing Authority, Revenue Refunding, Occidental
Petroleum, 6.700%, 7/01/19
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products -- 9.4%
1,400,000 The Haywood County Industrial Facilities and Pollution Control 9/05 at 102 Baa1 1,504,650
Financing Authority (North Carolina), Series 1995, Environmental
Improvement Revenue Bonds (Champion International Corporation Project),
6.250%, 9/01/25 (Alternative Minimum Tax)
4,000,000 The Haywood County Industrial Facilities and Pollution Control 10/03 at 102 Baa1 4,079,280
Financing Authority (North Carolina), Solid Waste Disposal Revenue
Bonds (Champion International Corporation Project), Series 1993,
5.500%, 10/01/18 (Alternative Minimum Tax)
3,100,000 The Haywood County Industrial Facilities and Pollution Control 3/06 at 102 Baa1 3,271,058
Financing Authority, Variable Rate Demand Pollution Control Refunding
Revenue Bonds (Champion International Corporation Project),
6.000%, 3/01/20
Martin County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority, Solid Waste Disposal Revenue Bonds (Weyerhaeuser
Company Project):
1,900,000 7.250%, 9/01/14 (Alternative Minimum Tax) 9/01 at 103 A 2,096,536
6,000,000 6.800%, 5/01/24 (Alternative Minimum Tax) 5/04 at 102 A 6,686,100
1,000,000 Martin County, North Carolina, Industrial Facilities and Pollution 11/05 at 102 A 1,055,520
Control Financing Authority, Solid Waste Disposal Revenue Bonds,
Series 1995 (Weyerhaeuser Company Project), 6.000%, 11/01/25
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care -- 17.9%
The Charlotte-Mecklenburg Hospital Authority (North Carolina), Health Care
System Revenue Refunding Bonds, Series A:
5,300,000 5.750%, 1/15/21 1/06 at 102 AA 5,592,189
5,500,000 5.875%, 1/15/26 1/06 at 102 AA 5,881,205
6,000,000 The Charlotte-Mecklenburg Hospital Authority (North Carolina), Health 1/07 at 102 AA 5,930,760
Care System Revenue Bonds, Series 1997A, Doing Business as Carolina
Healthcare System, 5.125%, 1/15/22
</TABLE>
29
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
$ 1,000,000 North Carolina Medical Care Commission, Hospital Revenue Bonds (Annie 2/02 at 102 Baa3 $1,130,650
Penn Memorial Hospital Project), Series 1991, 7.500%, 8/15/21
North Carolina Medical Care Commission, Hospital Revenue, Halifax
Memorial Hospital Project:
1,275,000 6.750%, 8/15/14 8/02 at 102 Baa1 1,372,563
1,000,000 6.750%, 8/15/24 8/02 at 102 Baa1 1,077,310
2,200,000 North Carolina Medical Care Commission, Hospital Revenue, Roanoke, 10/99 at 102 BBB+ 2,318,382
Chowan Hospital Project, 7.750%, 10/01/19
3,400,000 North Carolina Medical Care Commission, Hospital Revenue, Community 10/00 at 102 BBB 3,769,614
General Hospital Of Thomasville, 8.100%, 10/01/15
2,500,000 Northern Hospital District, Surry County, North Carolina, Health Care 10/01 at 102 BBB 2,736,350
Facilities Revenue Refunding, 7.875%, 10/01/21
5,750,000 Board of Governors of The University of North Carolina, University of 2/06 at 102 AA 5,771,218
North Carolina Hospitals at Chapel Hill Revenue Bonds, Series 1996,
5.250%, 2/15/26
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 1.0%
1,340,000 City of Asheville, North Carolina, Housing Authority, 11/07 at 102 AAA 1,382,022
Multifamily Revenue Bonds, Series 1996 (GNMA Collateralized -
Woodridge Apartments), 5.750%, 11/20/29 (Alternative Minimum Tax)
620,000 North Carolina Housing Finance Agency, Multifamily Revenue 7/02 at 102 AA 663,884
Refunding Bonds (1992 Refunding Bond Resolution), Series
B, 6.900%, 7/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 10.6%
245,000 North Carolina Housing Finance Agency, Single 9/98 at 102 AA 250,738
Family Revenue, Series E, 8.125%, 9/01/19
645,000 North Carolina Housing Finance Agency, Single 3/02 at 100 AA 659,248
Family Revenue, Series G, 7.800%, 3/01/21
795,000 North Carolina Housing Finance Agency, Single Family Revenue, 3/01 at 102 AA 848,217
Series O, 7.600%, 3/01/21 (Alternative Minimum Tax)
North Carolina Housing Finance Agency, Single Family Revenue, Series Y:
2,000,000 6.300%, 9/01/15 9/04 at 102 AA 2,147,240
1,845,000 6.350%, 3/01/18 9/04 at 102 AA 1,979,556
1,910,000 North Carolina Housing Finance Agency, Single Family Revenue, 9/05 at 102 AA 2,037,015
Series BB, 6.500%, 9/01/26 (Alternative Minimum Tax)
3,500,000 North Carolina Housing Finance Agency, Single Family Refunding, 3/05 at 102 AA 3,675,525
Series DD, 6.200%, 9/01/27 (Alternative Minimum Tax)
4,360,000 North Carolina Housing Finance Agency, Single Family, Series 3/06 at 102 AA 4,597,707
LL, 6.200%, 3/01/26 (Alternative Minimum Tax)
4,000,000 North Carolina Housing Finance Agency, Single Family, Series 3/07 at 101 1/2 AA 4,131,840
RR, 5.850%, 9/01/28 (Alternative Minimum Tax)
680,000 Winston Salem, North Carolina, Single Family Mortgage Revenue, 9/00 at 102 A1 708,240
8.000%, 9/01/07 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial/Other -- 0.8%
1,400,000 Gaston County, North Carolina, Industrial Facilities and 11/01 at 103 N/R 1,524,908
Pollution Control Financing Authority, Industrial Development
Revenue Bonds, Series 1985 (ABB-Combustion Engineering Inc.),
8.850%, 11/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 0.1%
220,000 Puerto Rico Commonwealth, Refunding, 8.000%, 7/01/07 7/98 at 102 A 225,124
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 17.8%
500,000 City of Asheville, North Carolina, Certificates of Participation, Series 2/02 at 102 A1 534,570
1992, 6.500%, 2/01/08
1,000,000 City of Asheville, North Carolina, Certificates of 6/07 at 101 AAA 995,660
Participation, Series 1997A, 5.125%, 6/01/18
City of Charlotte, North Carolina, General Obligation
Water and Sewer Bonds, Series 1995A:
500,000 5.400%, 4/01/19 4/05 at 102 AAA 521,525
3,445,000 5.400%, 4/01/20 4/05 at 102 AAA 3,585,142
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited (continued)
<C> <S> <C> <C> <C>
$ 4,000,000 Cumberland County Finance Corporation, North Carolina, 12/08 at 102 AAA $ 3,833,040
Installment Payment Revenue Bonds (Public Building and
Equipment Projects), Series 1998, 4.750%, 12/01/17
600,000 City of Durham, North Carolina, Certificates of Participation 6/05 at 102 AA 640,290
Series 1995, 5.800%, 6/01/15
County of Harnett, North Carolina, Certificates of Participation,
Series 1994 (Harnett County Projects):
1,000,000 6.200%, 12/01/06 12/04 at 102 AAA 1,117,150
1,750,000 6.200%, 12/01/09 12/04 at 102 AAA 1,960,298
500,000 6.400%, 12/01/14 12/04 at 102 AAA 560,550
Pitt County, North Carolina, Certificates of Participation, Pitt
County Public Facilities, Series A:
1,250,000 5.550%, 4/01/12 4/07 at 102 AAA 1,329,075
1,000,000 5.850%, 4/01/17 4/07 at 102 AAA 1,080,130
10,000,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 10,480,500
Bonds, Series Y of 1996, 5.500%, 7/01/36
555,000 Puerto Rico Infrastructure Financing Authority, Series 1988A, 7/98 at 102 BBB+ 567,726
7.750%, 7/01/08
1,750,000 Puerto Rico Infrastructure Financing Authority, Special Tax 1/08 at 101 AAA 1,723,138
Revenue Bonds, Series 1997A, 5.000%, 7/01/28
1,000,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed No Opt. Call A 1,062,300
Refunding, Series L, 5.500%, 7/01/21
605,000 Ramseur, North Carolina, Refunding, 5.750%, 6/01/22 6/07 at 102 N/R 630,104
715,000 Stokes County, North Carolina, Certificates of Participation, 3/01 at 102 AAA 780,001
7.000%, 3/01/06
1,410,000 County of Union, North Carolina, Certificates of Participation, 4/03 at 102 AAA 1,543,217
Series 1992, 6.375%, 4/01/12
2,375,000 Winston Salem, North Carolina, Special Obligation, Solid Waste 4/05 at 102 AA 2,451,974
Management Project, 5.500%, 4/01/16
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 12.1%
140,000 Asheville, North Carolina, Housing Development Corporation, First 11/09 at 100 N/R*** 187,726
Lien Revenue Bonds, Series 1980, 10.500%, 5/01/11 (Pre-refunded
to 11/01/09)
1,500,000 County of Buncombe, North Carolina, Certificates of Participation 12/02 at 102 Aa3 1,651,935
(1992 Buncombe County Project), 6.625%, 12/01/10
1,900,000 Craven Regional Medical Authority (North Carolina), Insured 10/00 at 102 AAA 2,071,418
Health Care Facilities Revenue Bonds, Series 1990, 7.200%,
10/01/19 (Pre-refunded to 10/01/00)
750,000 County of Cumberland, North Carolina, Hospital Facility Revenue 10/98 at 102 AAA 775,313
Bonds (Cumberland County Hospital System, Inc.), Series 1988,
7.875%, 10/01/14 (Pre-refunded to 10/01/98)
705,000 City of Durham, North Carolina, Certificates of Participation 9/00 at 102 Aa*** 767,710
(1990 Financing Project), 7.250%, 9/01/10 (Pre-refunded to
9/01/00)
1,000,000 City of Durham, North Carolina, Certificates of Participation, 12/01 at 102 Aa3*** 1,106,000
Series 1991, 6.750%, 12/01/11 (Pre-refunded to 12/01/01)
1,450,000 Certificates of Participation, City of Greensboro, North 7/98 at 102 AAA 1,484,046
Carolina, Lease/Purchase Agreement with Greensboro Center
City Corporation, 7.900%, 7/01/09 (Pre-refunded to 7/01/98)
2,055,000 North Carolina Medical Care Commission, Health Care Facilities 10/99 at 102 AAA 2,200,658
Revenue, Stanley Memorial Hospital Project, 7.800%, 10/01/19
(Pre-refunded to 10/01/99)
North Carolina Eastern Municipal Power Agency, Power System
Revenue Refunding Bonds, Series 1989 A:
690,000 7.500%, 1/01/21 (Pre-refunded to 1/01/99) 1/99 at 102 Aaa 718,628
500,000 7.250%, 1/01/23 (Pre-refunded to 1/01/99) 1/99 at 102 Aaa 520,025
995,000 North Carolina Eastern Municipal Power Agency, Power System No Opt. Call AAA 1,193,274
Revenue Refunding, Series A, 6.500%, 1/01/18
95,000 North Carolina Medical Care Commission, Hospital Revenue Bonds No Opt. Call AAA 110,842
(Memorial Mission Hospital Project), Series A, 7.625%, 10/01/08
North Carolina Medical Care Commission, Hospital Revenue,
Scotland Memorial Hospital Project:
190,000 8.100%, 10/01/98 No Opt. Call N/R 192,787
200,000 8.150%, 10/01/99 (Pre-refunded to 10/01/98) 10/98 at 102 N/R*** 206,892
1,000,000 8.625%, 10/01/11 (Pre-refunded to 10/01/98) 10/98 at 102 N/R*** 1,036,040
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund (continued)
May 31, 1998
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Guaranteed (continued)
$ 600,000 North Carolina Medical Care Commission, Hospital Revenue, 10/99 at 102 N/R*** $ 643,260
Transylvania Community Hospital Project, 8.000%, 10/01/19
(Pre-refunded to 10/01/99)
700,000 Pender County, North Carolina, Certificates of Participation, 6/01 at 102 Baa1*** 785,197
7.700%, 6/01/11 (Pre-refunded to 6/01/01)
1,000,000 County of Pitt, North Carolina, Certificates of Participation, 4/00 at 102 AAA 1,071,350
6.900%, 4/01/08 (Pre-refunded to 4/01/00)
Commonwealth of Puerto Rico, Public Improvement Bonds of 1988,
Series A (General Obligation Bonds):
500,000 7.750%, 7/01/06 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 511,675
2,000,000 7.750%, 7/01/13 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 2,046,700
780,000 Puerto Rico Commonwealth, Refunding, 8.000%, 7/01/07 (Pre-refunded 7/98 at 102 AAA 798,385
to 7/01/98)
Puerto Rico Aqueduct and Sewer Authority, Revenue Bonds, Series 1988A:
1,000,000 7.900%, 7/01/07 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 1,023,480
850,000 7.875%, 7/01/17 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 869,941
1,895,000 Puerto Rico Infrastructure Finance Authority, Series 7/98 at 102 BBB+*** 1,939,172
1988A, 7.750%, 7/01/08 (Pre-refunded to 7/01/98)
200,000 Puerto Rico Electric Power Authority, Power Revenue Refunding, Formerly 7/98 at 102 AAA 204,714
Puerto Rico Commonwealth Water Resource Authority, Series M, 8.000%,
7/01/08 (Pre-refunded to 7/01/98)
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities -- 15.5%
Coastal Regional Solid Waste Management Authority (North Carolina),
Solid Waste System Revenue Bonds, Series 1992:
1,000,000 6.300%, 6/01/04 6/02 at 102 A 1,085,610
1,000,000 6.500%, 6/01/08 6/02 at 102 A 1,078,200
1,000,000 City of Concord, North Carolina, Utilities Systems Revenue Bonds, 12/05 at 102 AAA 1,034,400
Series 1995, 5.500%, 12/01/19
City of Fayetteville, North Carolina, Public Works Commission Revenue
Bonds, Series 1995A:
1,845,000 5.250%, 3/01/16 3/05 at 102 AAA 1,869,391
1,000,000 5.375%, 3/01/20 3/05 at 102 AAA 1,015,610
5,900,000 City of Fayetteville, North Carolina, Public Works Commission Revenue 3/07 at 101 AAA 5,870,264
Bonds, Series 1997, 5.125%, 3/01/24
1,500,000 City of Gastonia, North Carolina, Combined Utilities System Revenue 5/08 at 102 AAA 1,459,125
Bonds, Series 1998, 4.750%, 5/01/15
2,000,000 City of Gastonia, North Carolina, Combined Utilities System Revenue 5/08 at 102 AAA 1,913,000
Bonds, Series 1994, 4.750%, 5/01/19
2,000,000 City of Greenville, North Carolina, Greenville Utilities Commission, 9/04 at 102 A+ 2,146,680
Combined Enterprise System Revenue Bonds, Series 1994, 6.000%, 9/01/16
5,300,000 North Carolina Eastern Municipal Power Agency, Power System Revenue No Opt. Call AAA 5,963,984
Bonds, Refunding, Series 1993 B, 6.000%, 1/01/18
5,250,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series DD, 7/08 at 101 BBB+ 5,090,925
5.000%, 7/01/28
870,000 Shelby, North Carolina, Combined Enterprise System Revenue Refunding, 5/05 at 102 A 891,524
Series A, 5.500%, 5/01/17
1,470,000 Shelby, North Carolina, Combined Enterprise System Revenue Refunding, 5/05 at 102 A 1,506,368
Series B, 5.500%, 5/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 5.8%
2,000,000 City of Asheville, North Carolina, Water System Revenue Bonds, Series 8/06 at 102 AAA 2,110,420
1996, 5.700%, 8/01/25
3,400,000 City of Greensboro, North Carolina, Combined Enterprise System Revenue 6/05 at 102 AA- 3,469,292
Bonds, Series 1995A, 5.375%, 6/01/19
3,000,000 County of Union, North Carolina, Enterprise Systems Revenue Bonds, 6/06 at 102 AAA 3,131,370
Series 1996, 5.500%, 6/01/17
Winston Salem, North Carolina, Water and Sewer System Revenue, Series B:
750,000 5.600%, 6/01/14 6/05 at 102 AA+ 788,970
1,500,000 5.700%, 6/01/17 6/05 at 102 AA+ 1,583,174
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer(continued)
$ 475,348 Woodfin Treatment Facility, Inc. (North Carolina), Proportionate No Opt. Call N/R $ 477,357
Interest Certificates, 5.500%, 12/01/03
- ------------------------------------------------------------------------------------------------------------------------------------
$192,015,348 Total Investments - (cost $181,340,338) -- 97.3% 193,672,451
============------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 2.7% 5,415,097
--------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $199,087,548
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
33
<PAGE>
Portfolio of Investments
Nuveen Flagship South Carolina Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Education and Civic Organizations - 9.4%
$400,000 Board of Trustees of Coastal Carolina University, South Carolina, 6/04 at 102 AAA $454,068
Revenue Bonds, Series 1994, 6.800%, 6/01/19
500,000 South Carolina State Education Assistance Authority, Revenue Refunding, 9/04 at 101 A 532,905
Guaranteed Student Loan Subordinate Lien, 6.300%, 9/01/08 (Alternative
Minimum Tax)
250,000 University of South Carolina, University Revenues, 5.600%, 6/01/14 6/07 at 101 AAA 265,213
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 4.0%
500,000 Darlington County, South Carolina, Industrial Development Revenue Bonds 4/06 at 102 A 530,460
(Sonoco Products Company Project), Series 1996, 6.000%, 4/01/26
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 13.0%
200,000 Greenville Hospital System Board of Trustees, Hospital Facilities No Opt. Call AAA 223,582
Revenue Bonds (South Carolina), Series 1990, 6.000%, 5/01/20
250,000 Greenwood County, South Carolina, Hospital Facilities Revenue Bonds 10/03 at 102 AAA 263,595
(Self Memorial Hospital), Series 1993, 5.875%, 10/01/17
250,000 South Carolina, Jobs and Economic Development Authority, Hospital 11/05 at 102 AAA 265,678
Facilities Revenue, Tuomey Regional Medical Center, Series A,
5.750%, 11/01/15
500,000 South Carolina Jobs and Economic Development Authority, Hospital Revenue 5/08 at 101 Aaa 483,080
Bonds (Georgetown Memorial Hospital), Series 1998, 5.000%, 11/01/29
500,000 Spartanburg County, South Carolina, Health Services District Inc., 4/07 at 101 AAA 490,850
Hospital Revenue Refunding, Series B, 5.125%, 4/15/22
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 4.3%
300,000 South Carolina Regional Housing Development Corporation No. 1, 7/02 at 102 Aa 315,345
Multifamily Revenue Refunding, Redwood Village Apartments, Series A,
6.625%, 7/01/17
250,000 South Carolina Housing Finance and Development Authority, Multifamily 11/05 at 102 AA- 259,013
Housing Revenue Refunding Bonds (Runaway Bay Apartments Project),
Series 1995, 6.125%, 12/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 4.0%
250,000 South Carolina State Housing Authority, Homeownership Mortgage Purchase, 7/04 at 102 AA 266,695
Series A, 6.150%, 7/01/08
250,000 South Carolina State Housing Finance and Development Authority, 5/06 at 102 Aa2 265,678
Mortgage Revenue, Series A, 6.350%, 7/01/25 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 16.6%
250,000 School District No. 4 of Anderson County, South Carolina, General 3/05 at 102 AAA 259,515
Obligation Bonds, Series 1995, 5.400%, 3/01/15
500,000 Cherokee School District No. 1 of Cherokee County, South Carolina, 3/07 at 101 Aa1 498,755
General Obligation Bonds, Series 1997, 5.000%, 3/01/17
365,000 Florence County School District No. 5, South Carolina, General 3/06 at 102 AAA 388,915
Obligation Bonds, Series 1996A, 5.700%, 3/01/17
250,000 Lexington County, South Carolina, Public Library System, 6.300%, 2/01/10 2/03 at 102 Aa2 275,390
500,000 Lexington County, South Carolina, School District No. 3, 5.000%, 3/01/17 3/07 at 101 Aa1 499,960
250,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1994 (General 7/04 at 101 1/2 AAA 282,973
Obligation Bonds), 6.400%, 7/01/11
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited -- 17.0%
Berkeley County School District, Certificates of Participation:
$ 250,000 6.250%, 2/01/12 2/04 at 102 AAA $ 274,893
250,000 6.300%, 2/01/16 2/04 at 102 AAA 275,510
10,000 Charleston County, South Carolina, Charleston Public Facilities 6/04 at 102 AAA 11,306
Corporation, Certificates of Participation, Series 1994B, 6.875%,
6/01/14
400,000 Chesterfield County School District, South Carolina, Chesterfield School 7/05 at 102 AAA 434,000
Facilities, Inc., Certificates of Participation, Series 1995, 6.000%,
7/01/15
250,000 Hilton Head Public Facilities Corporation (South Carolina), Certificates 3/05 at 102 AAA 266,980
of Participation Series 1995, 5.750%, 3/01/14
500,000 City of Myrtle Beach, South Carolina, Myrtle Beach Public Facilities 7/08 at 102 AAA 493,920
Corporation, Refunding Certificates of Participation (Myrtle Beach
Convention Center Project), Series 1998, 5.000%, 7/01/17
400,000 North Charleston, South Carolina, Certificates of Participation, 9/07 at 102 AAA 394,616
Refunding and Improvement, Coliseum and Convention, 5.125%, 9/01/19
100,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed Refunding, No Opt. Call A 106,230
Series L, 5.500%, 7/01/21
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation -- 4.4%
300,000 Horry County, South Carolina, Airport Revenue Bonds, Series 1997A, 7/07 at 102 AAA 314,310
5.700%, 7/01/27 (Alternative Minimum Tax)
250,000 Richland, Lexington, South Carolina, Airport District Airport Revenue, 1/05 at 100 AAA 265,170
Columbia Metropolitan Airport, 6.000%, 1/01/15 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 4.2%
240,000 Charleston County, South Carolina, Charleston Public Facilities 6/04 at 102 AAA 277,853
Corporation, Certificates of Participation, Series 1994 B, 6.875%,
6/01/14 (Pre-refunded to 6/01/04)
250,000 Georgetown County Water and Sewer District, Water and Sewer System 6/05 at 102 N/R*** 285,775
Revenue Refunding and Improvement Bonds, Junior Lien, Series 1995
(South Carolina), 6.500%, 6/01/25 (Pre-refunded to 6/01/05)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 2.0%
250,000 Charleston County, South Carolina, Solid Waste User Fee Revenue 1/05 at 102 AAA 271,160
Bonds, Series 1994, 6.000%, 1/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 13.7%
300,000 City of Greenville, South Carolina, Waterworks System Revenue 2/07 at 102 Aa1 309,510
Bonds, Series 1997, 5.500%, 2/01/22
500,000 Lexington, South Carolina, Water and Sewer Revenue, 5.500%, 4/01/29 4/07 at 102 AA 511,439
250,000 Spartanburg, South Carolina, Sanitation Sewer District, Sewer 6/07 at 101 AAA 258,154
System Revenue Improvement, 5.500%, 6/01/20
500,000 Spartanburg, South Carolina, Waterworks Revenue Refunding, 5.000%, 6/07 at 101 AAA 489,729
6/01/22
250,000 York County, South Carolina, Water and Sewer System Revenue Bonds, 12/03 at 102 N/R 255,197
Series 1995, 6.500%, 12/01/25
- -----------------------------------------------------------------------------------------------------------------------------------
$11,765,000 Total Investments -- (cost $11,496,791) -- 92.6% 12,317,422
===========------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 7.4% 982,473
-------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $13,299,895
===================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There
may be other call provisions at varying prices at later
dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal
and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
35
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Basic Materials - 5.4%
$ 3,000,000 Industrial Development Board of the City of Chattanooga (Tennessee), 7/03 at 103 AA- $ 3,264,030
Pollution Control Revenue Bonds, Series 1982 A (E.I. du Pont de
Nemours and Company), 6.350%, 7/01/22
12,000,000 The Industrial Development Board of Humphreys County, Tennessee, Solid 5/04 at 102 AA- 13,278,360
Waste Disposal Facility Bonds (E.I. du Pont de Nemours and Company
Project), 6.700%, 5/01/24 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclical - 2.5%
7,000,000 Maury County, Tennessee, Industrial Development Board, Pollution 9/04 at 102 A 7,717,920
Control Revenue, Multi-Modal Refunding, Saturn Corporation Project,
6.500%, 9/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 0.5%
250,000 Memphis, Shelby County, Tennessee, Industrial Development Board, No Opt. Call A1 283,615
Industrial Development Revenue, Colonial Baking Company - Memphis
Project, 9.500%, 4/01/01
1,245,000 South Fulton, Tennessee, Industrial Development Board, Industrial 10/05 at 102 A3 1,357,585
Development Revenue, Tyson Foods, Inc. Project, 6.400%, 10/01/20
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 2.0%
3,705,000 Tennessee State School Bond Authority, Higher Educational 5/02 at 101 1/2 AAA 3,996,139
Facilities Bonds, 1992 Series A, 6.250%, 5/01/22
2,000,000 Tennessee State School Bond Authority, Higher Educational 5/06 at 102 AA 2,115,440
Facilities Bonds, 1996 Series C, 5.700%, 5/01/20
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 5.1%
6,750,000 Loudon County, Tennessee, Industrial Development Board, Solid 2/03 at 102 AA 7,205,018
Waste Disposal Revenue, Kimberly-Clark Corporation Project,
6.200%, 2/01/23 (Alternative Minimum Tax)
2,500,000 McMinn County, Tennessee, Industrial Development Board, Pollution 3/01 at 102 Baa1 2,733,175
Control Revenue, Calhoun NWSPRT Company Project, Bowater, Series A,
7.625%, 3/01/16 (Alternative Minimum Tax)
4,950,000 McMinn County, Tennessee, Industrial Development Board, Solid Waste 12/02 at 102 Baa1 5,535,140
Revenue Recycling Facility, Calhoun NWSPRT Company Project, Bowater,
7.400%, 12/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 12.9%
1,930,000 The Health, Educational and Housing Facility Board of the City of 9/01 at 102 AAA 2,093,876
Chattanooga, Tennessee, Hospital Revenue Bonds, Series 1991A
(Memorial Hospital Project), 6.600%, 9/01/12
City of Clarksville, Tennessee, Hospital Revenue Refunding and
Improvement Bonds, Series 1993 (Clarksville Memorial Hospital
Project):
1,000,000 6.250%, 7/01/08 7/03 at 102 Baa1 1,067,790
1,775,000 6.250%, 7/01/13 7/03 at 102 Baa1 1,884,234
1,250,000 6.375%, 7/01/18 7/03 at 102 Baa1 1,332,375
1,550,000 The Industrial Development Board of the City of Cookeville, Tennessee, 12/03 at 102 A 1,627,361
Hospital Refunding Revenue Bonds, Series 1993 (Cookeville General
Hospital Project), 5.750%, 10/01/10
7,350,000 The City of Jackson, Tennessee, Hospital Revenue Refunding and 4/05 at 102 AAA 7,674,429
Improvement Bonds, Series 1995 (Jackson-Madison County General Hospital
Project), 5.625%, 4/01/15
2,090,000 The Health and Educational Facilities Board of the City of Johnson, 7/01 at 102 AAA 2,270,012
Tennessee, Hospital Revenue Refunding and Improvement Bonds, Series 1991
(Johnson City Medical Center Hospital), 6.750%, 7/01/16
135,000 The Health, Educational and Housing Facilities Board of the County of 1/00 at 100 AAA 138,163
Knox (Tennessee), Hospital Revenue Bonds, Series 1988 (Fort Sanders
Regional Medical Center), 8.000%, 1/01/08
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Health Care (continued)
The Health, Educational and Housing Facilities Board of the County of
Knox (Tennessee), Hospital Revenue Bonds, Series 1993A (Fort Sanders
Alliance Obligated Group):
$ 1,000,000 6.250%, 1/01/13 No Opt. Call AAA $ 1,151,950
3,000,000 5.250%, 1/01/15 No Opt. Call AAA 3,118,170
1,250,000 The Health and Educational Facilities Board of the Metropolitan 11/05 at 102 AAA 1,316,100
Government of Nashville and Davidson County, Tennessee, Hospital
Revenue Bonds, Series 1995 (Adventist Health System/Sunbelt
Obligated Group), 5.750%, 11/15/25
2,395,000 The Health and Educational Facilities Board of the Metropolitan 11/01 at 102 AAA 2,638,116
Government of Nashville and Davidson County, Tennessee, Hospital
Revenue Bonds (Adventist Health/Sunbelt Obligated Group), 7.000%,
11/15/16
6,500,000 The Health and Educational Facilities Board of the Metropolitan 5/08 at 101 AAA 6,178,705
Government of Nashville and Davidson County, Tennessee, Hospital
Revenue Bonds, Series 1998A (Baptist Hospital, Inc.), 4.875%, 11/01/28
4,000,000 Shelby County, Tennessee, Health, Educational and Housing Facility 8/05 at 102 AAA 4,037,760
Board, Hospital Revenue Refunding, Methodist Health System Inc.,
5.250%, 8/01/15
2,500,000 Sumner County, Tennessee, Health, Educational and Housing Facilities 11/04 at 102 A- 2,855,200
Board, Revenue Refunding, Sumner Regional Health System, Inc., Series
1994, 7.500%, 11/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 2.3%
1,200,000 The Health, Educational and Housing Facility Board of the City of 7/03 at 102 Aaa 1,252,008
Chattanooga, Tennessee, Multifamily Mortgage Revenue Refunding Bonds,
Series 1993A (Windridge Apartments-FHA Insured Mortgage), 5.950%, 7/01/14
3,500,000 The Industrial Development Board of the City of Franklin (Tennessee), 10/06 at 102 AAA 3,672,900
Multifamily Housing Revenue Refunding Bonds (The Landings Apartments
Project), Senior Series 1996A, 6.000%, 10/01/26
Metropolitan Government of Nashville and Davidson County, Tennessee,
Health and Educational Facilities Board, Housing Mortgage Revenue, Herman
Street:
250,000 7.000%, 6/01/17 6/02 at 103 AAA 268,978
495,000 7.250%, 6/01/32 6/02 at 103 AAA 532,323
1,250,000 The Industrial Development Board of the Metropolitan Government of 10/98 at 103 AAA 1,294,913
Nashville and Davidson County (Tennessee), Multi-Family Housing Revenue
Refunding Bonds (FHA-Insured Mortgage Loan-St.Paul Retirement Center
Project), Series 1988A, 8.125%, 10/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 6.2%
275,000 County of Hamilton, Tennessee, Single Family Mortgage Revenue Bonds 9/00 at 102 AAA 289,487
(Home Purchase and Rehabilitation Program), Series 1990, 8.000%, 9/01/23
(Alternative Minimum Tax)
6,000,000 Tennessee Housing Development Agency, Home Ownership Program, Issue 4A, 7/06 at 102 AA 6,368,580
6.375%, 7/01/22 (Alternative Minimum Tax)
1,500,000 Tennessee Housing Development Agency, Home Ownership Program, Series 3, 7/07 at 102 AA 1,563,315
5.850%, 7/01/17 (Alternative Minimum Tax)
1,420,000 Tennessee Housing Development Agency, Home Ownership Program, Series O, 7/99 at 103 AA 1,452,632
7.750%, 7/01/20 (Alternative Minimum Tax)
805,000 Tennessee Housing Development Agency, Home Ownership Program, Series P, 7/00 at 103 AA 844,485
7.700%, 7/01/16
120,000 Tennessee Housing Development Agency, Home Ownership Program, Issue U, 7/01 at 102 Aa2 126,942
7.400%, 7/01/16
3,900,000 Tennessee Housing Development Agency, Home Ownership Program, 7.375%, 7/01 at 102 Aa2 4,122,885
7/01/23 (Alternative Minimum Tax)
2,695,000 Tennessee Housing Development Agency, Home Ownership Program Bonds, 7/02 at 102 AA 2,862,683
Issue WR, 6.800%, 7/01/17
225,000 Tennessee Housing Development Agency, Home Ownership Program Bonds, 7/02 at 102 AA 237,915
Issue XR, 6.875%, 7/01/22 (Alternative Minimum Tax)
1,000,000 Tennessee Housing Development Agency, Mortgage Finance Program Bonds, 7/04 at 102 A+ 1,075,140
1994 Series A, 6.900%, 7/01/25 (Alternative Minimum Tax)
</TABLE>
37
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Long Term Care - 2.5%
$ 2,985,000 The Health and Educational Facilities Board of the Metropolitan Government 2/08 at 102 AA $ 3,062,401
of Nashville and Davidson County, Tennessee, Multi-Modal Interchangeable
Rate, Health Facility Revenue Bonds (Richland Place, Inc. Project),
Series 1993, 5.500%, 5/01/23
4,700,000 The Health and Educational Facilities Board of the Metropolitan Government 7/08 at 102 N/R 4,630,346
of Nashville and Davidson County, Tennessee, Revenue Refunding Bonds (The
Blakeford at Green Hills), Series 1998, 5.650%, 7/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 7.0%
Hamilton County, Tennessee, General Obligation Bonds, Series 1995:
1,490,000 6.250%, 2/01/20 2/05 at 102 Aa2 1,682,553
2,025,000 6.300%, 2/01/25 2/05 at 102 Aa2 2,292,523
1,435,000 Memphis, Tennessee, Series B, Airport, 7.050%, 7/01/10 (Alternative 7/98 at 102 AA 1,467,603
Minimum Tax)
5,950,000 Metropolitan Government of Nashville and Davidson County, Tennessee, 5/07 at 102 AA 5,902,579
Refunding, 5.125%, 5/15/25
8,000,000 Metropolitan Government of Nashville and Davidson County, Tennessee, 5/06 at 101 AA 8,557,840
Public Improvement, 5.875%, 5/15/21
385,000 Puerto Rico Commonwealth, Refunding, 8.000%, 7/01/07 7/98 at 102 A 393,967
1,000,000 Shelby County, Tennessee, General Obligation Refunding Bonds, 1995 4/05 at 101 AA+ 1,051,960
Series A, 5.625%, 4/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 13.7%
Metropolitan Government of Nashville and Davidson County, Tennessee,
Health and Educational Facilities Board, Revenue Refunding and
Improvement, Meharry Medical College:
4,000,000 5.000%, 12/01/24 6/09 at 100 AAA 3,874,400
1,000,000 5.000%, 12/01/24 12/17 at 100 AAA 1,133,700
5,000,000 Metropolitan Government of Nashville and Davidson County, Tennessee, 7/06 at 101 AAA 5,283,700
Sports Authority Revenue, Public Improvement Stadium Project, 5.750%,
7/01/26
6,275,000 Puerto Rico Highway and Transportation Authority, Highway Revenue Bonds, 7/16 at 100 A 6,576,514
Series Y of 1996, 5.500%, 7/01/36
500,000 Puerto Rico Highway and Transportation Authority, Highway Revenue Bonds, No Opt. Call AAA 537,440
Series W, 5.500%, 7/01/15
3,000,000 Puerto Rico Infrastructure Financing Authority, Special Tax Revenue Bonds, 1/08 at 101 AAA 3,052,740
Series 1997A, 5.000%, 7/01/13
13,300,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed Refunding, No Opt. Call A 14,128,590
Series L, 5.500%, 7/01/21
2,660,000 Tennessee State Local Development Authority, Community Provider Loan 10/02 at 102 A 2,936,454
Program, 7.000%, 10/01/21
Wilson County, Tennessee, Series 1994, Certificates of Participation
(Wilson County Educational Facilities Corporation):
1,500,000 6.125%, 6/30/10 6/04 at 102 A 1,619,610
1,500,000 6.250%, 6/30/15 6/04 at 102 A 1,618,650
1,000,000 Wilson County, Tennessee, Certificates of Participation, Series 1998, 3/08 at 102 AAA 1,004,300
School Facilities Lease Agreement with Wilson County, Educational
Facilities Development Corporation, 5.250%, 3/30/18
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 5.1%
5,545,000 Memphis-Shelby County Airport Authority (Tennessee), Special Facilities 9/01 at 103 BBB 6,219,050
Revenue Bonds, Series 1984 (Federal Express Corporation), 7.875%, 9/01/09
4,100,000 Memphis-Shelby County Airport Authority (Tennessee), Special Facilities 9/02 at 102 BBB 4,492,698
Revenue Refunding Bonds, Series 1992 (Federal Express Corporation),
6.750%, 9/01/12
Metropolitan Nashville Airport Authority (Tennessee), Airport Improvement
Revenue Refunding Bonds, Series 1991C:
145,000 6.625%, 7/01/07 7/01 at 102 AAA 157,763
4,385,000 6.600%, 7/01/15 7/01 at 102 AAA 4,750,490
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Guaranteed - 18.5%
The Health and Educational Facilities Board of the County of Anderson,
Tennessee, Hospital Revenue Refunding and Improvement Bonds, Series 1988
(Methodist Medical Center of Oak Ridge):
$ 2,400,000 8.125%, 7/01/08 (Pre-refunded to 7/01/98) 7/98 at 102 A1*** $ 2,456,760
250,000 8.125%, 7/01/08 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 255,915
1,000,000 City of Chattanooga, Tennessee, General Obligation Bonds, Series 1990, 5/00 at 102 AA*** 1,078,920
Various Purpose, 7.250%, 5/01/12 (Pre-refunded to 5/01/00)
1,455,000 Gladeville Utility District of Wilson County, Tennessee, Waterworks 10/00 at 100 AAA 1,566,497
Revenue Bonds, Series 1990, 7.400%, 10/01/10 (Pre-refunded to 10/01/00)
5,000,000 Johnson City, Tennessee, School Sales Tax Revenue and Unlimited Tax 5/06 at 100 AAA 5,803,700
Bonds, Series 1994, 6.700%, 5/01/21 (Pre-refunded to 5/01/06)
3,000,000 The Health, Educational and Housing Facilities Board of the County of 9/99 at 102 AAA 3,195,660
Knox (Tennessee), Hospital Facilities Revenue Bonds, Series 1989 A
(Mercy Health System, Province of Cincinnati), 7.600%, 9/01/19
(Pre-refunded to 9/01/99)
3,065,000 The Health, Educational and Housing Facilities Board of the County of 1/00 at 102 AAA 3,265,298
Knox (Tennessee), Hospital Facilities Revenue Bonds, Series 1990C (Fort
Sanders Alliance Obligated Group), 7.000%, 1/01/15 (Pre-refunded to
1/01/00)
41,570,000 Metropolitan Government of Nashville and Davidson County, Tennessee, No Opt. Call Aaa 12,283,519
Health and Educational Facilities Board, Subordinate Volunteer
Healthcare Revenue, 0.000%, 6/01/21
1,200,000 Metropolitan Government of Nashville and Davidson County, Tennessee, 10/07 at 105 N/R*** 1,616,580
Health and Educational Facilities Board, Mur, Ci Homes Inc. Project,
Series A, 9.000%, 10/01/22 (Pre-refunded to 10/01/07)
2,500,000 The Public Building Authority of the City of Mt. Juliet, Tennessee, 2/04 at 110 AAA 3,146,600
Revenue Bonds (Utility District Loan Program), Series B, The Madison
Suburban Utility District, 7.800%, 2/01/19 (Pre-refunded to 2/01/04)
1,500,000 Northeast Knox, Tennessee, Utility District Water Revenue, 7.000%, 1/00 at 102 AAA 1,599,480
1/01/20 (Pre-refunded to 1/01/00)
1,365,000 Puerto Rico Commonwealth, Refunding, 8.000%, 7/01/07 (Pre-refunded 7/98 at 102 AAA 1,397,173
to 7/01/98)
1,000,000 Puerto Rico Commonwealth Highway Authority, Highway Revenue, Series P, 7/98 at 102 AAA 1,023,680
8.125%, 7/01/13 (Pre-refunded to 7/01/98)
1,000,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly Puerto 7/98 at 102 AAA 1,023,570
Rico Commonwealth Water Resource Authority Power, Refunding, Series M,
8.000%, 7/01/08 (Pre-refunded to 7/01/98)
865,000 Selmer, Tennessee, Refunding, 8.200%, 7/01/13 (Pre-refunded to 7/01/98) 7/98 at 102 Baa*** 885,535
The Health, Educational and Housing Facility Board of the County of
Shelby, Tennessee, Revenue Bonds, Series C (LeBonheur Childrens Medical
Center, Inc.):
1,000,000 7.625%, 8/15/09 (Pre-refunded to 8/15/98) 8/98 at 102 AAA 1,027,860
2,000,000 7.600%, 8/15/19 (Pre-refunded to 8/15/98) 8/98 at 102 AAA 2,055,620
4,000,000 The Health, Educational and Housing Facilities Board of the County of 2/00 at 102 AAA 4,290,800
Sullivan, Tennessee, Hospital Revenue Bonds, Series 1990 (Holston
Valley Health Care, Inc.), 7.250%, 2/15/20 (Pre-refunded to 2/15/00)
Tennessee State Local Development Authority, State Loan Program,
Series A:
1,325,000 7.000%, 3/01/12 (Pre-refunded to 3/01/01) 3/01 at 102 AA-*** 1,448,543
1,175,000 7.000%, 3/01/21 (Pre-refunded to 3/01/01) 3/01 at 102 AA-*** 1,284,557
125,000 Tennessee State School Bond Authority, Higher Educational Facilities 5/99 at 102 AA*** 131,061
Bonds, 1989 Series, 7.000%, 5/01/20 (Pre-refunded to 5/01/99)
1,000,000 West Knox Utility District, Knox County, Tennessee, Water and Sewer 12/98 at 102 AAA 1,039,870
Revenue Improvement, 7.750%, 12/01/08 (Pre-refunded to 12/01/98)
2,300,000 The White House Utility District of Robertson and Sumner Counties, 1/02 at 102 AAA 2,515,464
Tennessee, Water Revenue Refunding and Improvement Bonds, Series 1992B,
6.375%, 1/01/22 (Pre-refunded to 1/01/02)
Wilson County, Tennessee, Water and Wastewater Authority, Waterworks
Revenue, Refunding and Improvement:
1,000,000 7.875%, 3/01/09 (Pre-refunded to 3/01/99) 3/99 at 102 N/R*** 1,049,820
950,000 8.000%, 3/01/14 (Pre-refunded to 3/01/99) 3/99 at 102 N/R*** 998,203
</TABLE>
39
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Utilities - 10.6%
$ 1,520,000 City of Clarksville, Tennessee, Water, Sewer and Gas Revenue Refunding No Opt. Call AAA $ 625,282
and Improvement Bonds, Series 1992, 0.000%, 2/01/16
2,160,000 City of Dickson, Tennessee, Electric System Revenue Bonds, Series 1996, 9/08 at 102 AAA 2,265,970
5.500%, 9/01/16
The City of Jackson, Tennessee, Electric System Revenue Bonds, Series E:
315,000 6.300%, 8/01/09 8/00 at 102 A1 332,574
335,000 6.300%, 8/01/10 8/00 at 102 A1 352,973
355,000 6.300%, 8/01/11 8/00 at 102 A1 373,669
380,000 6.300%, 8/01/12 8/00 at 102 A1 399,821
3,000,000 City of Jackson, Tennessee, Gas System Revenue Bonds, Series 1997, 4/07 at 100 AAA 2,966,310
5.000%, 4/15/18
4,475,000 Lawrenceburg, Tennessee, Electric Revenue, 5.500%, 7/01/26 7/09 at 100 AAA 4,644,155
The Metropolitan Government of Nashville and Davidson County, Tennessee,
Electric Revenue, Series A:
7,800,000 0.000%, 5/15/11 No Opt. Call AAA 4,207,242
8,500,000 0.000%, 5/15/12 No Opt. Call AAA 4,312,390
The Metropolitan Government of Nashville and Davidson County, Tennessee,
Electric System Revenue Bonds, 1998 Series A:
11,000,000 0.000%, 5/15/19 (WI) No Opt. Call AAA 3,719,870
4,000,000 5.200%, 5/15/23 (WI) 5/08 at 102 AA 3,988,800
1,000,000 The Middle Tennessee Utility District of Cannon, Cumberland, DeKalb, 10/02 at 102 AAA 1,102,000
Putnam, Rhea, Rutherford, Smith, Warren, White and Wilson Counties,
Tennessee, Gas System Revenue Bonds, Series 1992, 6.250%, 10/01/12
1,020,000 The Public Building Authority of the City of Mt. Juliet, Tennessee, 2/99 at 102 AAA 1,064,053
Revenue Bonds (Utility District Loan Program), Series D, Cumberland
Utility District (Hermitage), 7.550%, 2/01/19
2,000,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, 7/08 at 101 BBB+ 1,877,620
Series EE, 4.750%, 7/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 5.8%
1,125,000 Eastside Utility District of Hamilton County, Tennessee, Water 11/01 at 102 A 1,243,203
System Revenue Bonds, Series 1992, 6.750%, 11/01/11
5,445,000 City of Knoxville, Tennessee, Wastewater System Refunding and 4/07 at 101 AA 5,373,071
Improvement Bonds, Series 1998, 5.125%, 4/01/23
3,000,000 Madison Suburban Utility District, Water Revenue Refunding Bonds, 2/08 at 100 AAA 2,965,500
5.000%, 2/01/19
3,000,000 The Metropolitan Government of Nashville and Davidson County No Opt. Call AAA 3,140,130
(Tennessee), Water and Sewer Revenue Bonds, Series 1998B, 5.250%, 1/01/14
1,000,000 Milcrofton, Tennessee, Utility District, Waterworks Revenue Refunding 2/06 at 102 N/R 1,039,310
Junior Lien, 6.000%, 2/01/24
1,100,000 Rutherford County, Tennessee, Utility District, Waterworks Revenue 2/08 at 100 Aaa 1,104,883
Refunding and Improvement, Series A, 5.250%, 2/01/27
1,100,000 White House Utility District, Tennessee, Robertson and Sumner Counties, 1/07 at 100 Aaa 1,125,387
Waterworks System Revenue Refunding, Series B, 5.300%, 1/01/15
1,500,000 Wilson County, Tennessee, Water and Wastewater Authority, Waterworks 3/08 at 102 Baa1 1,634,070
Revenue Refunding and Improvement, 6.000%, 3/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
$334,815,000 Total Investments - (cost $282,996,090) - 100.1% 305,562,688
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (0.1)% (349,600)
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $305,213,088
====================================================================================================================
* Optional Call Provisions (not covered by the report of independent public accountants): Dates (month and year)
and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent public accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
(WI) Security purchased on a when-issued basis (note 1).
N/R Investment is not rated.
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
Statement of Net Assets
May 31, 1998
<TABLE>
<CAPTION>
Alabama Georgia Louisiana
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $7,592,982 $142,619,268 $111,952,849
Temporary investments in short-term municipal securities, at
amortized cost, which approximates market value (note 1) 300,000 -- 900,000
Cash 116,223 841,961 55,827
Receivables:
Fund manager (note 6) 9,573 -- --
Interest 120,413 2,759,500 1,724,373
Investments sold -- 4,171,596 60,000
Shares sold -- 620,684 489,824
Other assets 68,376 110,027 86,208
- -------------------------------------------------------------------------------------------------------------
Total assets 8,207,567 151,123,036 115,269,081
- -------------------------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased -- 7,012,339 2,894,425
Shares redeemed 56,219 367,966 11,059
Accrued expenses:
Management fees (note 6) -- 16,465 476
12b-1 distribution and service fees (notes 1 and 6) 3,013 34,551 30,317
Other 63,830 39,575 31,160
Dividends payable 34,086 573,729 449,469
- -------------------------------------------------------------------------------------------------------------
Total liabilities 157,148 8,044,625 3,416,906
- -------------------------------------------------------------------------------------------------------------
Net assets (note 7) $8,050,419 $143,078,411 $111,852,175
=============================================================================================================
Class A Shares (note 1)
Net assets $4,930,114 $120,544,790 $ 89,142,965
Shares outstanding 464,866 10,776,666 7,718,371
Net asset value and redemption price per share $ 10.61 $11.19 $11.55
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.08 $11.68 $12.06
=============================================================================================================
Class B Shares (note 1)
Net assets $ 843,074 $ 3,518,063 $ 8,998,906
Shares outstanding 79,365 314,200 779,459
Net asset value, offering and redemption price per share $ 10.62 $11.20 $11.55
=============================================================================================================
Class C Shares (note 1)
Net assets $2,154,795 $18,770,494 $13,682,318
Shares outstanding 202,810 1,681,075 1,185,689
Net asset value, offering and redemption price per share $ 10.62 $ 11.17 $ 11.54
=============================================================================================================
Class R Shares (note 1)
Net assets $ 122,436 $ 245,064 $ 27,986
Shares outstanding 11,464 21,986 2,422
Net asset value, offering and redemption price per share $ 10.68 $ 11.15 $ 11.55
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
Statement of Net Assets -- continued
May 31, 1998
<TABLE>
<CAPTION>
North Carolina South Carolina Tennessee
- ------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C>
Investments in municipal securities, at market value (note 1) $193,672,451 $12,317,422 $305,562,688
Temporary investments in short-term municipal securities, at
amortized cost, which approximates market value (note 1) -- -- --
Cash 2,837,591 810,402 2,037,759
Receivables:
Fund manager (note 6) -- 4,775 --
Interest 3,284,284 220,268 4,632,957
Investments sold -- -- --
Shares sold 418,441 -- 2,138,590
Other assets 253,746 79,490 173,150
- ------------------------------------------------------------------------------------------------------------------------------
Total assets 200,466,513 13,432,357 314,545,144
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased -- -- 7,610,516
Shares redeemed 253,948 37,133 237,153
Accrued expenses:
Management fees (note 6) 91,541 -- 138,659
12b-1 distribution and service fees (notes 1 and 6) 54,129 3,209 69,136
Other 147,433 34,091 42,059
Dividends payable 831,914 58,029 1,234,533
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,378,965 132,462 9,332,056
- ------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $199,087,548 $13,299,895 $305,213,088
==============================================================================================================================
Class A Shares (note 1)
Net assets $186,339,947 $11,590,925 $278,232,055
Shares outstanding 17,549,377 1,162,730 24,286,371
Net asset value and redemption price per share $ 10.62 $ 9.97 $ 11.46
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.09 $ 10.41 $ 11.96
==============================================================================================================================
Class B Shares (note 1)
Net assets $ 3,608,612 $ 724,042 $ 5,774,666
Shares outstanding 339,751 72,715 503,708
Net asset value, offering and redemption price per share $ 10.62 $ 9.96 $ 11.46
==============================================================================================================================
Class C Shares (note 1)
Net assets $ 8,291,407 $ 875,037 $ 20,672,561
Shares outstanding 782,072 87,818 1,805,073
Net asset value, offering and redemption price per share $ 10.60 $ 9.96 $ 11.45
==============================================================================================================================
Class R Shares (note 1)
Net assets $ 847,582 $ 109,891 $ 533,806
Shares outstanding 79,828 11,018 46,658
Net asset value, offering and redemption price per share $ 10.62 $ 9.97 $ 11.44
==============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
Statement of Operations
Year Ended May 31, 1998
<TABLE>
<CAPTION>
Alabama Georgia Louisiana
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Investment Income (note 1) $ 396,848 $ 7,760,505 $5,723,991
- -------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 40,626 740,472 535,294
12b-1 service fees -- Class A (notes 1 and 6) 10,288 235,172 164,872
12b-1 distribution and service fees -- Class B (notes 1 and 6) 7,192 14,815 40,431
12b-1 distribution and service fees -- Class C (notes 1 and 6) 10,774 116,640 79,636
Shareholders' servicing agent fees and expenses 6,645 58,302 33,069
Custodian's fees and expenses 56,183 54,820 48,699
Trustees' fees and expenses (note 6) 73 2,318 1,540
Professional fees 10,570 18,600 18,600
Shareholders' reports -- printing and mailing expenses 1,791 20,403 11,155
Federal and state registration fees 8,077 2,825 4,650
Organizational expenses (note 1) 20,276 -- --
Other expenses 379 5,878 3,944
- -------------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 172,874 1,270,245 941,890
Expense reimbursement (note 6) (130,681) (278,606) (122,920)
- -------------------------------------------------------------------------------------------------------------
Net expenses 42,193 991,639 818,970
- -------------------------------------------------------------------------------------------------------------
Net investment income 354,655 6,768,866 4,905,021
- -------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (notes 1 and 4) (7,615) 1,432,222 141,609
Net change in unrealized appreciation or depreciation of investments 288,179 5,917,362 3,885,856
- -------------------------------------------------------------------------------------------------------------
Net gain from investments 280,564 7,349,584 4,027,465
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 635,219 $14,118,450 $8,932,486
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
Statement of Operations -- continued
Year Ended May 31, 1998
<TABLE>
<CAPTION>
North Carolina South Carolina Tennessee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (note 1) $11,543,644 $ 689,665 $17,161,486
- --------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 1,064,856 68,969 1,565,600
12b-1 service fees -- Class A (notes 1 and 6) 371,113 22,652 537,896
12b-1 distribution and service fees -- Class B (notes 1 and 6) 13,177 4,426 24,120
12b-1 distribution and service fees -- Class C (notes 1 and 6) 56,974 5,120 130,791
Shareholders' servicing agent fees and expenses 85,524 4,120 123,162
Custodian's fees and expenses 57,779 33,593 64,302
Trustees' fees and expenses (note 6) 3,654 219 5,212
Professional fees 20,425 14,950 22,250
Shareholders' reports -- printing and mailing expenses 36,182 2,339 52,065
Federal and state registration fees 6,475 3,141 11,322
Organizational expenses (note 1) -- 11,826 --
Other expenses 9,476 649 12,162
- --------------------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 1,725,635 172,004 2,548,882
Expense reimbursement (note 6) -- (94,494) (56,952)
- --------------------------------------------------------------------------------------------------------------------
Net expenses 1,725,635 77,510 2,491,930
- --------------------------------------------------------------------------------------------------------------------
Net investment income 9,818,009 612,155 14,669,556
- --------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 2,602,198 134,377 1,206,421
Net change in unrealized appreciation or depreciation of investments 3,819,600 395,866 8,713,135
- --------------------------------------------------------------------------------------------------------------------
Net gain from investments 6,421,798 530,243 9,919,556
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $16,239,807 $1,142,398 $24,589,112
====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Alabama
--------------------------
Year Ended Year Ended
5/31/98 5/31/97*
- ------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 354,655 $ 197,497
Net realized gain (loss) from investment
transactions (notes 1 and 4) (7,615) 588
Net change in unrealized appreciation or
depreciation of investments 288,179 138,286
- -----------------------------------------------------------------------
Net increase in net assets from operations 635,219 336,371
- -----------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (257,710) (195,673)
Class B (32,374) (2,069)
Class C (61,979) (212)
Class R (2,611) (1)
From accumulated net realized gains from
investment transactions:
Class A -- --
Class B -- --
Class C -- --
Class R -- --
- -----------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (354,674) (197,955)
- -----------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 4,157,996 2,438,658
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 168,561 99,346
- -----------------------------------------------------------------------
4,326,557 2,538,004
- -----------------------------------------------------------------------
Cost of shares redeemed (1,798,211) (691,292)
- -----------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 2,528,346 1,846,712
- -----------------------------------------------------------------------
Net increase in net assets 2,808,891 1,985,128
Net assets at the beginning of year 5,241,528 3,256,400
- -----------------------------------------------------------------------
Net assets at the end of year $ 8,050,419 $5,241,528
=======================================================================
Balance of undistributed net investment
income at end of year $ 38 $ 57
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
Georgia
-------------------------
Year Ended Year Ended
5/31/98 5/31/97**
- ------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 6,768,866 $ 6,488,615
Net realized gain (loss) from investment
transactions (notes 1 and 4) 1,432,222 816,979
Net change in unrealized appreciation or
depreciation of investments 5,917,362 3,379,145
- ------------------------------------------------------------------------
Net increase in net assets from operations 14,118,450 10,684,739
- ------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (5,990,008) (5,973,872)
Class B (64,796) (779)
Class C (704,588) (513,629)
Class R (8,432) (289)
From accumulated net realized gains from
investment transactions:
Class A -- --
Class B -- --
Class C -- --
Class R -- --
- ------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (6,767,824) (6,488,569)
- ------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 23,251,629 18,042,463
Net proceeds from shares issued to shareholder
due to reinvestment of distributions 4,132,821 3,251,554
- ------------------------------------------------------------------------
27,384,450 21,294,017
- ------------------------------------------------------------------------
Cost of shares redeemed (15,113,415) (19,327,898)
- ------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 12,271,035 1,966,119
- ------------------------------------------------------------------------
Net increase in net assets 19,621,661 6,162,289
Net assets at the beginning of year 123,456,750 117,294,461
- ------------------------------------------------------------------------
Net assets at the end of year $143,078,411 $123,456,750
========================================================================
Balance of undistributed net investment
income at end of year $ 1,088 $ 46
========================================================================
</TABLE>
<TABLE>
<CAPTION>
Louisiana
---------------------------
Year Ended Year Ended
5/31/98 5/31/97***
- ---------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 4,905,021 $ 4,309,839
Net realized gain (loss) from investment
transactions (notes 1 and 4) 141,609 185,297
Net change in unrealized appreciation or
depreciation of investments 3,885,856 2,691,765
- ---------------------------------------------------------------------------
Net increase in net assets from operations 8,932,486 7,186,901
- ---------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (4,236,624) (4,001,489)
Class B (179,990) (7,151)
Class C (486,474) (300,999)
Class R (844) (1)
From accumulated net realized gains from
investment transactions:
Class A (274,625) (16,962)
Class B (13,410) --
Class C (36,540) (1,376)
Class R (77) --
- ---------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (5,228,584) (4,327,978)
- ---------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 30,672,632 12,680,296
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 3,175,043 2,019,609
- ---------------------------------------------------------------------------
33,847,675 14,699,905
- ---------------------------------------------------------------------------
Cost of shares redeemed (10,292,295) (10,629,223)
- ---------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 23,555,380 4,070,682
- ---------------------------------------------------------------------------
Net increase in net assets 27,259,282 6,929,605
Net assets at the beginning of year 84,592,893 77,663,288
- ---------------------------------------------------------------------------
Net assets at the end of year $111,852,175 $ 84,592,893
===========================================================================
Balance of undistributed net investment
income at end of year $ 1,288 $ 199
===========================================================================
</TABLE>
* Information represents eight months of Flagship Alabama and four months of
Alabama (note 1).
** Information represents eight months of Flagship Georgia and four months of
Georgia (note 1).
*** Information represents eight months of Flagship Louisiana and four months
of Louisiana (note 1).
See accompanying notes to financial statements.
45
<PAGE>
Statement of Changes in Net Assets--continued
<TABLE>
<CAPTION>
North Carolina South Carolina Tennessee
---------------------------- -------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
5/31/98 5/31/97* 5/31/98 5/31/97** 5/31/98 5/31/97***
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income $ 9,818,009 $ 10,118,809 $ 612,155 $ 588,783 $ 14,669,556 $ 14,402,555
Net realized gain from investment
transactions (notes 1 and 4) 2,602,198 1,921,251 134,377 12,003 1,206,421 1,595,041
Net change in unrealized appreciation or
depreciation of investments 3,819,600 2,403,810 395,866 270,459 8,713,135 3,989,675
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 16,239,807 14,443,870 1,142,398 871,245 24,589,112 19,987,271
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (9,438,035) (9,701,977) (562,433) (583,450) (13,691,307) (13,649,276)
Class B (56,790) (1,977) (18,919) (1,592) (105,904) (3,542)
Class C (342,967) (326,112) (29,703) (1,078) (783,552) (744,238)
Class R (34,750) (4,651) (3,387) (340) (18,350) (2,064)
From accumulated net realized gains from
investment transactions:
Class A (28,220) -- -- -- -- --
Class B (137) -- -- -- -- --
Class C (1,157) -- -- -- -- --
Class R (109) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to
shareholders (9,902,165) (10,034,717) (614,442) (586,460) (14,599,113) (14,399,120)
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 18,647,466 13,538,981 6,771,482 2,419,482 41,278,818 27,836,928
Net proceeds from shares issued to
shareholders due to reinvestment of
distributions 5,610,070 5,178,488 325,450 337,619 7,905,778 7,269,232
- ------------------------------------------------------------------------------------------------------------------------------------
24,257,536 18,717,469 7,096,932 2,757,101 49,184,596 35,106,160
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (20,843,771) (25,396,297) (4,559,640) (3,340,985) (27,270,877) (33,754,624)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions 3,413,765 (6,678,828) 2,537,292 (583,884) 21,913,719 1,351,536
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 9,751,407 (2,269,675) 3,065,248 (299,099) 31,903,718 6,939,687
Net assets at the beginning of year 189,336,141 191,605,816 10,234,647 10,533,746 273,309,370 266,369,683
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $199,087,548 $189,336,141 $13,299,895 $10,234,647 $305,213,088 $273,309,370
====================================================================================================================================
Balance of undistributed net investment
income at end of year $ 29,559 $ 84,092 $ 36 $ 2,323 $ 73,878 $ 3,435
====================================================================================================================================
</TABLE>
* Information represents eight months of Flagship North Carolina and four
months of North Carolina (note 1).
** Information represents eight months of Flagship South Carolina and four
months of South Carolina (note 1).
*** Information represents eight months of Flagship Tennessee and four months
of Tennessee (note 1).
See accompanying notes to financial statements.
46
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises the Nuveen Flagship Alabama Municipal Bond Fund, the Nuveen
Flagship Georgia Municipal Bond Fund, the Nuveen Flagship Louisiana Municipal
Bond Fund, the Nuveen Flagship North Carolina Municipal Bond Fund, the Nuveen
Flagship South Carolina Municipal Bond Fund, and the Nuveen Flagship Tennessee
Municipal Bond Fund (the "Funds"). The Trust was organized as a Massachusetts
business trust on July 1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Adviser") of the Funds, entered into an agreement under
which Nuveen acquired Flagship Resources Inc. and after the close of business on
January 31, 1997, consolidated their respective mutual fund businesses. This
agreement was approved at a meeting by the shareholders of the Flagship Funds in
December 1996.
After the close of business on January 31, 1997, Flagship Alabama Double Tax
Exempt Fund ("Flagship Alabama"), Flagship Georgia Double Tax Exempt Fund
("Flagship Georgia"), Flagship Louisiana Double Tax Exempt Fund ("Flagship
Louisiana"), Flagship North Carolina Double Tax Exempt Fund ("Flagship North
Carolina"), Flagship South Carolina Double Tax Exempt Fund ("Flagship South
Carolina"), and Flagship Tennessee Double Tax Exempt Fund ("Flagship Tennessee")
were reorganized into the Trust and renamed the Nuveen Flagship Alabama
Municipal Bond Fund ("Alabama"), Nuveen Flagship Georgia Municipal Bond Fund
("Georgia"), Nuveen Flagship Louisiana Municipal Bond Fund ("Louisiana"), Nuveen
Flagship North Carolina Municipal Bond Fund ("North Carolina"), Nuveen Flagship
South Carolina Municipal Bond Fund ("South Carolina"), and Nuveen Flagship
Tennessee Municipal Bond Fund ("Tennessee"), respectively. Prior to these
reorganizations, Flagship Alabama, Flagship Georgia, Flagship Louisiana,
Flagship North Carolina, Flagship South Carolina, and Flagship Tennessee were
each a sub-trust of the Flagship Tax Exempt Funds Trust.
The Funds seek to provide high tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Funds have instructed the custodian
to segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1998, Georgia, Louisiana and Tennessee had outstanding when-issued and
delayed delivery purchase commitments of $1,975,951, $2,894,425 and $7,610,516,
respectively. The other Funds had no such outstanding purchase commitments.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
47
<PAGE>
Notes to Financial Statements (continued)
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Funds
currently consider significant net realized capital gains and/or market discount
as amounts in excess of $.001 per share. Furthermore, the Funds intend to
satisfy conditions which will enable interest from municipal securities, which
is exempt from regular federal and designated state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the Funds. All monthly
tax-exempt income dividends paid during the fiscal year ended May 31, 1998, have
been designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
Each Fund offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class B Shares are sold without a sales charge but
incur annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a CDSC of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class B Shares convert to Class A Shares eight years after purchase. Class C
Shares are sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within one year of purchase. Class R Shares are
not subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available for purchases of over $1 million and in other limited
circumstances.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap, option contracts, and other financial instruments with
similar characteristics. Although the Funds are authorized to invest in such
financial instruments, and may do so in the future, they did not make any such
investments during the fiscal year ended May 31, 1998.
Expense Allocation
Expenses of the Funds that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of Alabama and South Carolina
(approximately $60,800 and $35,400, respectively) are being reimbursed to the
Adviser on a straight-line basis over a period of three years. As of May 31,
1998, $40,540 and $23,644 of the organizational expenses, respectively, have
been reimbursed.
48
<PAGE>
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Alabama
-----------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
------------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 163,322 $ 1,720,355 165,385 $ 1,650,047
Class B 27,379 289,415 58,298 585,381
Class C 193,765 2,025,206 20,200 203,130
Class R 11,454 123,020 10 100
Shares issued to shareholders due to reinvestment of distributions:
Class A 12,620 131,454 9,936 99,346
Class B 1,929 20,240 -- --
Class C 1,603 16,867 -- --
Class R -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
412,072 4,326,557 253,829 2,538,004
- --------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (150,343) (1,576,278) (69,498) (691,292)
Class B (8,241) (87,307) -- --
Class C (12,758) (134,626) -- --
Class R -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
(171,342) (1,798,211) (69,498) (691,292)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase 240,730 $ 2,528,346 184,331 $ 1,846,712
================================================================================================================================
</TABLE>
*Information represents eight months of Flagship Alabama and four months of
Alabama (note 1).
<TABLE>
<CAPTION>
Georgia
------------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
------------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 999,370 $ 11,052,211 1,320,552 $ 13,778,494
Class B 326,545 3,623,322 10,720 112,660
Class C 754,384 8,321,447 393,868 4,129,100
Class R 23,229 254,649 2,104 22,209
Shares issued to shareholders due to reinvestment of distributions:
Class A 332,037 3,634,474 287,354 2,992,929
Class B 2,642 29,369 -- --
Class C 42,144 461,364 24,846 258,440
Class R 689 7,614 18 185
- ---------------------------------------------------------------------------------------------------------------------------------
2,481,040 27,384,450 2,039,462 21,294,017
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,106,180) (12,206,698) (1,627,331) (16,977,352)
Class B (25,707) (286,183) -- --
Class C (234,595) (2,575,425) (225,854) (2,350,546)
Class R (4,054) (45,109) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
(1,370,536) (15,113,415) (1,853,185) (19,327,898)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,110,504 $ 12,271,035 186,277 $ 1,966,119
================================================================================================================================
</TABLE>
*Information represents eight months of Flagship Georgia and four months of
Georgia (note 1).
49
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Louisiana
-----------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
-----------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C>
Class A 1,434,264 $ 16,414,741 822,022 $ 9,004,313
Class B 695,080 7,947,255 82,598 911,240
Class C 551,499 6,283,912 252,430 2,764,643
Class R 2,348 26,724 9 100
Shares issued to shareholders due to reinvestment of distributions:
Class A 240,527 2,733,739 168,536 1,844,320
Class B 6,824 78,150 104 1,144
Class C 31,852 362,355 15,928 174,145
Class R 70 799 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
2,962,464 33,847,675 1,341,627 14,699,905
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (808,970) (9,237,098) (861,984) (9,454,331)
Class B (5,147) (58,547) -- --
Class C (87,146) (996,590) (107,483) (1,174,892)
Class R (5) (60) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
(901,268) (10,292,295) (969,467) (10,629,223)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase 2,061,196 $ 23,555,380 372,160 $ 4,070,682
================================================================================================================================
</TABLE>
*Information represents eight months of Flagship Louisiana and four months
of Louisiana (note 1).
<TABLE>
<CAPTION>
North Carolina
-----------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
-----------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C>
Class A 1,219,335 $ 12,822,305 1,139,324 $ 11,564,705
Class B 313,974 3,317,845 26,319 268,174
Class C 192,020 2,022,009 128,427 1,308,314
Class R 46,162 485,307 39,185 397,788
Shares issued to shareholders due to reinvestment of distributions:
Class A 506,157 5,310,271 489,500 4,984,798
Class B 2,287 24,150 48 488
Class C 24,082 252,068 18,772 190,950
Class R 2,244 23,581 221 2,252
- ---------------------------------------------------------------------------------------------------------------------------------
2,306,261 24,257,536 1,841,796 18,717,469
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,846,947) (19,438,714) (2,374,729) (24,226,252)
Class B (2,877) (30,241) -- --
Class C (122,639) (1,290,365) (115,427) (1,170,045)
Class R (7,984) (84,451) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
(1,980,447) (20,843,771) (2,490,156) (25,396,297)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 325,814 $ 3,413,765 (648,360) $ (6,678,828)
=================================================================================================================================
*Information represents eight months of Flagship North Carolina and four
months of North Carolina (note 1).
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
South Carolina
-------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
-------------------------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 560,179 $ 5,485,573 192,810 $ 1,814,877
Class B 64,625 634,556 16,861 160,503
Class C 58,105 569,890 44,094 419,098
Class R 8,239 81,463 2,621 25,004
Shares issued to shareholders due to
reinvestment of distributions:
Class A 30,157 294,728 35,809 337,619
Class B 859 8,458 -- --
Class C 2,103 20,709 -- --
Class R 158 1,555 -- --
- ------------------------------------------------------------------------------------------------
724,425 7,096,932 292,195 2,757,101
- ------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (438,336) (4,302,290) (353,491) (3,340,985)
Class B (9,630) (96,212) -- --
Class C (16,484) (161,138) -- --
Class R -- -- -- --
- ------------------------------------------------------------------------------------------------
(464,450) (4,559,640) (353,491) (3,340,985)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) 259,975 $ 2,537,292 (61,296) $ (583,884)
================================================================================================
*Information represents eight months of Flagship South Carolina and four
months of South Carolina (note 1).
Tennessee
--------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
--------------------------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
Shares sold:
Class A 2,614,021 $29,710,291 2,181,165 $23,957,505
Class B 456,706 5,193,888 48,526 533,276
Class C 538,381 6,116,529 282,598 3,100,098
Class R 22,800 258,110 22,306 246,049
Shares issued to shareholders due to
reinvestment of distributions:
Class A 641,169 7,255,500 619,521 6,805,317
Class B 3,774 42,976 66 718
Class C 52,336 590,588 42,079 461,759
Class R 1,474 16,714 131 1,438
- ------------------------------------------------------------------------------------------------
4,330,661 49,184,596 3,196,392 35,106,160
- ------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,250,196) (25,540,334) (2,682,025) (29,442,527)
Class B (5,300) (59,853) (64) (699)
Class C (147,264) (1,670,240) (393,458) (4,311,248)
Class R (39) (450) (14) (150)
- ------------------------------------------------------------------------------------------------
(2,402,799) (27,270,877) (3,075,561) (33,754,624)
- ------------------------------------------------------------------------------------------------
Net increase 1,927,862 $21,913,719 120,831 $ 1,351,536
================================================================================================
</TABLE>
*Information represents eight months of Flagship Tennessee and four months of
Tennessee (note 1).
3. Distributions to Shareholders
The Funds declared dividend distributions from their tax-exempt net investment
income which were paid on July 1, 1998, to shareholders of record on June 9,
1998, as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend per share:
Class A $.0435 $.0460 $.0480 $.0445 $.0400 $.0470
Class B .0370 .0390 .0410 .0380 .0340 .0400
Class C .0390 .0410 .0430 .0395 .0355 .0415
Class R .0455 .0480 .0500 .0460 .0420 .0485
==================================================================================
</TABLE>
51
<PAGE>
Notes to Financial Statements (continued)
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended May 31,
1998, were as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases:
Investments in municipal securities $6,740,467 $45,374,511 $38,729,583 $55,816,235 $8,596,169 $72,413,167
Temporary municipal investments 3,200,000 19,000,000 13,000,000 19,550,000 4,200,000 29,100,000
Sales:
Investments in municipal securities 4,437,664 32,650,889 14,864,665 55,437,357 7,085,619 42,487,343
Temporary municipal investments 2,900,000 19,000,000 14,300,000 19,550,000 4,200,000 33,600,000
=======================================================================================================================
</TABLE>
At May 31, 1998, the identified cost of investments owned for federal income tax
purposes was the same as the cost for financial reporting purposes for each
Fund.
At May 31, 1998, the following Funds had unused capital loss carryforwards
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
South
Alabama Georgia Carolina Tennessee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expiration Year:
2002 $ -- $ 506,838 $ -- $ --
2003 -- 503,259 172,174 2,790,147
2005 9,205 -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Total $ 9,205 $ 1,010,097 $ 172,174 $ 2,790,147
=======================================================================================================================
</TABLE>
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at May 31, 1998, were as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross unrealized:
appreciation $440,964 $12,256,090 $9,312,072 $12,456,587 $820,631 $22,632,427
depreciation (5,803) -- -- (124,474) -- (65,829)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation $435,161 $12,256,090 $9,312,072 $12,332,113 $820,631 $22,566,598
=======================================================================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, each Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of each Fund:
<TABLE>
<CAPTION>
Average Daily Net Asset Value Management Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
=======================================================================================================================
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser or its affiliates.
The adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
52
<PAGE>
During the fiscal year ended May 31, 1998, the Distributor collected sales
charges on purchases of Class A Shares, the majority of which were paid out as
concessions to authorized dealers as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales charges collected $40,092 $300,386 $367,133 $288,651 $78,847 $661,874
Paid to authorized dealers 34,666 259,160 327,987 248,966 73,377 595,047
============================================================================================
</TABLE>
The Distributor also received 12b-1 service fees on Class A Shares,
substantially all of which were paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
During the fiscal year ended May 31, 1998, the Distributor compensated
authorized dealers directly with commission advances at the time of purchase as
follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commission advances $ 31,889 $ 245,972 $ 424,888 $ 186,424 $ 42,379 $307,149
==============================================================================================
</TABLE>
To compensate for commissions advanced to authorized dealers, all 12b-1 service
fees collected on Class B Shares during the first year following a purchase, all
12b-1 distribution fees on Class B Shares, and all 12b-1 service and
distribution fees on Class C Shares during the first year following a purchase
are retained by the Distributor. During the fiscal year ended May 31, 1998, the
Distributor retained such 12b-1 fees as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12b-1 fees retained $17,955 $64,729 $76,379 $25,873 $9,488 $61,950
==============================================================================================
</TABLE>
The remaining 12b-1 fees charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained CDSC on share redemptions during the
fiscal year ended May 31, 1998, as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CDSC retained $1,317 $14,164 $3,241 $2,816 $439 $5,210
==============================================================================================
</TABLE>
7. Composition of Net Assets
At May 31, 1998, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital paid-in $7,637,008 $131,997,057 $102,597,881 $185,212,001 $12,651,402 $285,362,759
Balance of undistributed net
investment income 38 1,088 1,288 29,559 36 73,878
Accumulated net realized gain (loss)
from investment transactions (21,788) (1,175,824) (59,066) 1,513,875 (172,174) (2,790,147)
Net unrealized appreciation of
investments 435,161 12,256,090 9,312,072 12,332,113 820,631 22,566,598
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets $8,050,419 $143,078,411 $111,852,175 $199,087,548 $13,299,895 $305,213,088
==================================================================================================================================
</TABLE>
53
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
-------------------------------- ------------------------------
Net
Beginning Realized/ Ending
Net Net Unrealized Net Net
Year Ended Asset Investment Investment Investment Capital Asset Total
May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b)
- --------------------------------------------------------------------------------------------------------------------------------
ALABAMA**
Class A (4/94)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $10.12 $.52 $ .50 $1.02 $(.53) $-- $(.53) $10.61 10.22%
1997 9.77 .53 .35 .88 (.53) -- (.53) 10.12 9.22
1996 9.94 .53 (.17) .36 (.53) -- (.53) 9.77 3.72
1995 9.66 .52 .28 .80 (.52) -- (.52) 9.94 8.77
1994 (c) 9.58 .03 .09 .12 (.04) -- (.04) 9.66 9.34*
Class B (2/97)
1998 10.14 .45 .48 .93 (.45) -- (.45) 10.62 9.31
1997 (c) 10.16 .11 (.02) .09 (.11) -- (.11) 10.14 .94
Class C (2/97)
1998 10.14 .47 .48 .95 (.47) -- (.47) 10.62 9.54
1997 (c) 10.16 .12 (.02) .10 (.12) -- (.12) 10.14 .99
Class R (2/97)
1998 10.13 .55 .55 1.10 (.55) -- (.55) 10.68 11.06
1997 (c) 10.16 .16 (.05) .11 (.14) -- (.14) 10.13 1.08
================================================================================================================================
GEORGIA***
Class A (3/86)
1998 $10.57 $.56 $ .62 $1.18 $(.56) $-- $(.56) $11.19 11.37%
1997 10.20 .57 .37 .94 (.57) -- (.57) 10.57 9.39
1996 10.46 .57 (.25) .32 (.58) -- (.58) 10.20 3.05
1995 10.23 .58 .23 .81 (.58) -- (.58) 10.46 8.31
1994 10.62 .59 (.39) .20 (.59) -- (.59) 10.23 1.83
Class B (2/97)
1998 10.57 .48 .63 1.11 (.48) -- (.48) 11.20 10.66
1997 (c) 10.66 .14 (.11) .03 (.12) -- (.12) 10.57 .31
Class C (1/94)
1998 10.55 .50 .62 1.12 (.50) -- (.50) 11.17 10.79
1997 10.18 .51 .37 .88 (.51) -- (.51) 10.55 8.80
1996 10.44 .51 (.25) .26 (.52) -- (.52) 10.18 2.48
1995 10.21 .52 .23 .75 (.52) -- (.52) 10.44 7.72
1994 (c) 10.91 .19 (.69) (.50) (.20) -- (.20) 10.21 (10.96)*
Class R (2/97)
1998 10.57 .58 .59 1.17 (.59) -- (.59) 11.15 11.23
1997 (c) 10.65 .18 (.06) .12 (.20) -- (.20) 10.57 1.11
================================================================================================================================
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income to Expenses Income to
to Average Average to Average Average
Net Assets Net Assets Net Assets Net Assets
Before Before After After Portfolio
Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover
Assets (000) ment ment ment (a) ment (a) Rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4,930 2.16% 3.22% .39% 4.99% 62%
4,446 3.04 2.65 .40 5.29 72
3,256 3.19 2.53 .48 5.24 42
1,880 7.61 (1.98) .16 5.47 120
357 34.92* (32.50)* -- 2.42* --
843 2.91 2.47 1.14 4.24 62
591 2.79* 2.18* .71* 4.26* 72
2,155 2.70 2.66 .94 4.42 62
205 2.62* 2.35* .40* 4.57* 72
122 1.91 3.44 .19 5.16 62
-- .91* 5.26* -- 6.17* 72
===================================================================================
$120,545 .87% 4.88% .66% 5.09% 25%
111,518 1.02 5.20 .78 5.44 39
107,862 1.08 5.18 .80 5.46 59
113,354 1.09 5.53 .83 5.79 40
123,068 1.06 5.11 .70 5.47 39
3,518 1.62 4.08 1.38 4.32 25
113 1.63* 4.49* 1.32* 4.80* 39
18,770 1.42 4.33 1.21 4.54 25
11,803 1.56 4.63 1.32 4.87 39
9,433 1.63 4.61 1.34 4.90 59
6,973 1.64 4.92 1.38 5.18 40
4,348 1.60* 4.22* 1.27* 4.55* 39
245 .67 5.04 .45 5.26 25
22 .68* 5.41* .38* 5.71* 39
===================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Alabama.
*** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Georgia.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
55
<PAGE>
Financial Highlights - continued
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ ----------------------------
Net
Beginning Realized/ Ending
Net Net Unrealized Net Net
Year Ended Asset Investment Investment Investment Capital Asset Total
May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOUISIANA**
Class A (9/89)
1998 $11.10 $.59 $ .49 $1.08 $(.59) $(.04) $(.63) $11.55 9.88%
1997 10.71 .59 .39 .98 (.59) -- (.59) 11.10 9.37
1996 10.80 .59 (.08) .51 (.60) -- (.60) 10.71 4.77
1995 10.48 .60 .32 .92 (.60) -- (.60) 10.80 9.20
1994 10.93 .61 (.40) .21 (.62) (.04) (.66) 10.48 1.77
Class B (2/97)
1998 11.09 .50 .50 1.00 (.50) (.04) (.54) 11.55 9.18
1997 (c) 11.10 .16 -- .16 (.17) -- (.17) 11.09 1.44
Class C (2/94)
1998 11.09 .52 .50 1.02 (.53) (.04) (.57) 11.54 9.32
1997 10.70 .53 .39 .92 (.53) -- (.53) 11.09 8.78
1996 10.80 .53 (.09) .44 (.54) -- (.54) 10.70 4.12
1995 10.48 .54 .32 .86 (.54) -- (.54) 10.80 8.59
1994 (c) 11.29 .16 (.81) (.65) (.16) -- (.16) 10.48 (17.21)*
Class R (2/97)
1998 11.09 .61 .50 1.11 (.61) (.04) (.65) 11.55 10.21
1997 (c) 11.17 .15 (.08) .07 (.15) -- (.15) 11.09 .67
- ----------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA***
Class A (3/86)
1998 $10.28 $.53 $ .34 $ .87 $(.53) -- $(.53) $10.62 8.69%
1997 10.05 .54 .23 .77 (.54) -- (.54) 10.28 7.79
1996 10.23 .55 (.18) .37 (.55) -- (.55) 10.05 3.67
1995 10.08 .57 .15 .72 (.57) -- (.57) 10.23 7.45
1994 10.51 .57 (.42) .15 (.58) -- (.58) 10.08 1.30
Class B (2/97)
1998 10.28 .45 .35 .80 (.46) -- (.46) 10.62 7.89
1997 (c) 10.33 .12 (.06) .06 (.11) -- (.11) 10.28 .64
Class C (10/93)
1998 10.26 .47 .34 .81 (.47) -- (.47) 10.60 8.09
1997 10.03 .48 .23 .71 (.48) -- (.48) 10.26 7.20
1996 10.22 .49 (.18) .31 (.50) -- (.50) 10.03 3.01
1995 10.06 .51 .16 .67 (.51) -- (.51) 10.22 6.97
1994 (c) 10.84 .32 (.78) (.46) (.32) -- (.32) 10.06 (6.26)*
Class R (2/97)
1998 10.28 .55 .34 .89 (.55) -- (.55) 10.62 8.88
1997 (c) 10.27 .18 .01 .19 (.18) -- (.18) 10.28 1.92
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income to Expenses Income to
to Average Average to Average Average
Net Assets Net Assets Net Assets Net Assets
Before Before After After Portfolio
Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover
Assets (000) ment ment ment(a) ment(a) Rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 89,143 .88% 5.00% .75% 5.13% 15%
76,030 1.03 5.14 .79 5.38 25
72,005 1.09 5.17 .80 5.46 26
68,145 1.18 5.45 .83 5.80 44
66,281 1.12 5.10 .66 5.56 22
8,999 1.62 4.21 1.45 4.38 15
917 1.65* 4.50* 1.46* 4.69* 25
13,682 1.42 4.45 1.29 4.58 15
7,645 1.57 4.59 1.33 4.83 25
5,658 1.64 4.58 1.35 4.87 26
3,220 1.73 4.85 1.37 5.21 44
1,501 1.68* 4.34* 1.23* 4.79* 22
28 .67 5.17 .52 5.32 15
-- .08* 5.27* .04* 5.31* 25
=================================================================================
$186,340 .86% 5.06% .86% 5.06% 29%
181,595 1.00 5.24 .93 5.31 23
185,016 1.03 5.19 .90 5.32 54
191,850 1.06 5.58 .91 5.73 35
196,087 1.04 5.26 .89 5.41 21
3,609 1.61 4.23 1.61 4.23 29
271 1.62* 4.60* 1.62* 4.60* 23
8,291 1.41 4.50 1.41 4.50 29
7,065 1.54 4.70 1.48 4.76 23
6,589 1.58 4.64 1.45 4.77 54
6,049 1.61 4.98 1.46 5.13 35
4,161 1.79* 4.35* 1.49* 4.65* 21
848 .66 5.24 .66 5.24 29
405 .66* 5.57* .66* 5.57* 23
=================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship Louisiana.
*** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship North Carolina.
+ The amount shown includes a distribution in excess of capital gains of $.01
per share.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(c) From commencement of class operations as noted.
57
<PAGE>
Financial Highlights - continued
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------- -------------------------------
Net
Beginning Realized/ Ending
Net Net Unrealized Net Net
Year Ended Asset Investment Investment Investment Capital Asset Total
May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOUTH CAROLINA**
Class A (7/93)
1998 $ 9.53 $.49 $ .44 $ .93 $(.49) $ -- $(.49) $ 9.97 9.95%
1997 9.28 .51 .24 .75 (.50) -- (.50) 9.53 8.28
1996 9.45 .48 (.15) .33 (.50) -- (.50) 9.28 3.53
1995 9.20 .50 .25 .75 (.50) -- (.50) 9.45 8.54
1994 (c) 9.58 .42 (.38) .04 (.39) (.03) (.42) 9.20 .15*
Class B (2/97)
1998 9.52 .41 .45 .86 (.42) -- (.42) 9.96 9.17
1997 (c) 9.61 .13 (.11) .02 (.11) -- (.11) 9.52 .20
Class C (2/97)
1998 9.52 .43 .45 .88 (.44) -- (.44) 9.96 9.37
1997 (c) 9.63 .13 (.13) -- (.11) -- (.11) 9.52 .03
Class R (2/97)
1998 9.54 .51 .43 .94 (.51) -- (.51) 9.97 10.10
1997 (c) 9.60 .14 (.07) .07 (.13) -- (.13) 9.54 .75
====================================================================================================================
TENNESSEE***
Class A (11/87)
1998 $11.06 $.58 $ .40 $ .98 $(.58) $ -- $(.58) $11.46 9.01%
1997 10.83 .59 .23 .82 (.59) -- (.59) 11.06 7.71
1996 11.01 .59 (.18) .41 (.59) -- (.59) 10.83 3.78
1995 10.78 .60 .23 .83 (.60) -- (.60) 11.01 8.04
1994 11.23 .61 (.43) .18 (.61) (.02) (.63) 10.78 1.55
Class B (2/97)
1998 11.06 .49 .40 .89 (.49) -- (.49) 11.46 8.21
1997 (c) 11.14 .14 (.09) .05 (.13) -- (.13) 11.06 .42
Class C (10/93)
1998 11.05 .52 .39 .91 (.51) -- (.51) 11.45 8.39
1997 10.82 .53 .23 .76 (.53) -- (.53) 11.05 7.12
1996 11.00 .53 (.18) .35 (.53) -- (.53) 10.82 3.22
1995 10.78 .54 .22 .76 (.54) -- (.54) 11.00 7.35
1994 (c) 11.61 .35 (.83) (.48) (.34) (.01) (.35) 10.78 (5.92)*
Class R (2/97)
1998 11.04 .60 .40 1.00 (.60) -- (.60) 11.44 9.20
1997 (c) 11.09 .20 (.05) .15 (.20) -- (.20) 11.04 1.40
=======================================================================================================================
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income to Expenses Income to
to Average Average to Average Average
Net Assets Net Assets Net Assets Net Assets
Before Before After After Portfolio
Year Ended Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover
May 31, Assets (000) ment ment ment ment(a) Rate
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOUTH CAROLINA**
Class A (7/93)
1998 $ 11,591 1.32% 4.18% .56% 4.94% 59%
1997 9,629 1.55 4.22 .41 5.36 68
1996 10,534 1.53 4.16 .71 4.98 76
1995 9,013 1.86 4.08 .40 5.54 87
1994 (c) 6,284 2.12* 3.10* .40* 4.82* 88
Class B (2/97)
1998 724 2.06 3.39 1.30 4.15 59
1997 (c) 160 2.12* 3.84* 1.09* 4.87* 68
Class C (2/97)
1998 875 1.86 3.63 1.11 4.38 59
1997 (c) 420 1.91* 3.85* .90* 4.86* 68
Class R (2/97)
1998 110 1.11 4.39 .35 5.15 59
1997 (c) 25 1.17* 4.70* .14* 5.73* 68
=======================================================================================================
TENNESSEE***
Class A (11/87)
1998 $278,232 .84% 5.09% .82% 5.11% 15%
1997 257,475 .97 5.23 .85 5.35 23
1996 250,886 1.01 5.17 .88 5.30 38
1995 241,778 1.07 5.46 .89 5.64 23
1994 236,230 1.02 5.16 .76 5.42 17
Class B (2/97)
1998 5,775 1.59 4.30 1.58 4.31 15
1997 (c) 537 1.60* 4.49* 1.37* 4.72* 23
Class C (10/93)
1998 20,673 1.39 4.53 1.37 4.55 15
1997 15,049 1.53 4.67 1.40 4.80 23
1996 15,483 1.56 4.62 1.43 4.75 38
1995 12,494 1.62 4.90 1.44 5.08 23
1994 (c) 10,652 1.63* 4.40* 1.23* 4.80* 17
Class R (2/97)
1998 534 .64 5.27 .62 5.29 15
1997 (c) 248 .66* 5.55* .46* 5.75* 23
=======================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship South Carolina.
*** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship Tennessee.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(c) From commencement of class operations as noted.
59
<PAGE>
Building a Better Portfolio
Can Make You a Successful Investor
Nuveen Family
of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free Income
National Funds
Long-Term Insured
Intermediate-Term
Limited-Term
State Funds
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
Successful investors know that a well-diversified portfolio -- one that balances
different types of investments, levels of risk and tax management -- can be the
foundation for building and sustaining wealth. That's why Nuveen offers you and
your financial adviser a wide range of quality investments that can help you
build a better portfolio in the pursuit of your financial goals.
Mutual Funds
Nuveen offers a family of equity, balanced and municipal bond funds featuring
Premier Advisers/SM/ including Institutional Capital Corporation, Rittenhouse
Financial Services, and Nuveen Advisory Corp. Each brings a specialized
expertise in a particular investment style or asset class, time-tested
investment strategies and a focus on consistent, long-term performance. With
Nuveen's Premier Adviser funds, you have all the advantages of a family of funds
plus the benefits of specialized investment expertise.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more to invest. A range of actively managed growth, balanced and municipal
income-oriented portfolios are available, all based upon a disciplined
investment philosophy.
Defined Portfolios
Nuveen Defined Portfolios are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, experienced, professional
security selection and surveillance and daily liquidity at that day's net asset
value for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MuniPreferred
Nuveen MuniPreferred offers investors a AAA rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
60
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Transfer Agent and
Shareholder Services
As of August 8, 1998
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
61
<PAGE>
Serving Investors for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today we offer a broad range of
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time - with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and tax-free income funds, along with our defined portfolios and
private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
NUVEEN 1898
OUR SECOND CENTURY 1998
helping investors sustain the wealth of a lifetime./TM/
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
VAN-4-5.98
